A company car on vacation - check how much it costs

Service-Tax

A company car used for private purposes is more expensive than a taxi. The tax law imposes an obligation on the employer to add this "convenience" to the employee's income and to deduct relevant amounts due.The regulations are also not favorable for the employer himself. It loses the ability to include vehicle operating costs in company costs, including depreciation. A company car can be made available for private use of an employee and this is often perceived as a measurable benefit and increasing his prestige towards other employees. It certainly plays a motivating role, linking it with the company. However, it is necessary to analyze what the enterprise can gain and what are the additional burdens resulting from tax and insurance law. Importantly, from January 1, 2015, the regulations clearly define the value of the benefit received by an employee for using the vehicle free of charge for private purposes.

A company car lent to an employee and VAT

As is clear from the provisions of the VAT Act (Article 8 (2) (1)), the use of goods constituting part of the taxpayer's enterprise for purposes other than its business activity, in particular for the personal purposes of the taxpayer or its employees, is also considered to be a paid service, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the acquisition, import or production of these goods or their component parts.

However, at this point, it would be necessary to take into account Art. 8 sec. 5 of the above-mentioned act, from which it follows that the provision of para. 2, paragraph 1 shall not apply in the case of the use of motor vehicles for purposes other than the economic activity of the taxpayer, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax, calculated in accordance with article 5. 86a paragraph 1 (the right to deduct 50% of the VAT amount), for:

  • purchase, import or manufacture of these vehicles or

  • the acquisition, import or manufacture of component parts for these vehicles, if the taxpayer was not entitled to reduce the amount of input tax due to the acquisition, import or manufacture of these vehicles.

The above situation also applies to vehicles used in the company on the basis of a leasing contract, when 50% VAT is deducted from leasing installments.

Important!

Therefore, if the taxpayer was entitled to deduct input tax in the amount of 50% of the VAT amount, he is not obliged to tax the lending of such a car to an employee for his private purposes.

On the other hand, when the employer had the full right to deduct VAT due to the purchase (import or leasing) of a motor vehicle, its use for private purposes (including by employees) will be subject to VAT.

Example 1.

Entrepreneur N uses a passenger car, which is a company's fixed asset. He was not entitled to a deduction from the purchase, as it was purchased on a VAT-margin invoice. The car was made available to the employee for his private purposes. Due to the fact that the entrepreneur was not entitled to deduct VAT on the purchase of the vehicle, he will not be required to report VAT on the employee's use of the vehicle for private purposes.

Example 2.

Entrepreneur K. has a company vehicle entered into the register, on the purchase of which he was entitled to a partial VAT deduction. The car was made available to the employee for his private purposes. In this situation, he will not be required to report VAT on this account, as he was not entitled to a full deduction from the purchase.

Lending a car to an employee and income

After years of disputes with the tax authorities, the legislator met entrepreneurs and introduced changes to the regulations on the basis of the so-called the fourth deregulation act. From January 1, 2015, the income from the gratuitous benefit to which an employee is using a company car for private purposes is determined on the basis of a flat rate. According to Art. 12 sec. 2a of the PIT Act, the monetary value of the gratuitous benefit due to the employee for the use of a company car for private purposes is determined as:

  • PLN 250 per month - for cars with an engine capacity of up to 1600 cm3;

  • PLN 400 per month - for cars with an engine capacity of more than 1600 cm3.

If a company car is used for private purposes for part of the month, the value of the benefit is determined for each day of using the car for private purposes in the amount of 1/30 of the stated amounts.

Example 3.

Entrepreneur X uses a 1500 cm3 passenger car in his business. In May, the car was made available to its employee for private use for the entire month. In the described situation, the employee earned income from the employment relationship in the amount of PLN 250 (for the entire month).

Example 4.

In April 2016, Entrepreneur Y provided the employee with a company car for his private purposes for a period of 20 days. The car's engine capacity is 1700 cm3. The employee earned taxable income in the amount of PLN 266.67 (PLN 400/30 days * 20 days).

Important!

Until the end of 2014, entrepreneurs were required to determine income based on Art. 11 sec. 2a of the PIT Act, according to which the amount of additional employee income is determined in two ways:

  • according to prices applied to other recipients - if the company deals with car rental,

  • on the basis of market prices used in the provision of services or the provision of things or rights of the same type and species, taking into account in particular their condition and degree of wear as well as the time and place of making available.

It should also be added that if the employer does not charge the employee with additional income, the tax office has the right to determine it according to its own assessment, and this may be very disadvantageous for the employee.

A company car lent to an employee versus fuel costs

It should be emphasized that the regulations concerning the determination of income pursuant to Art. 12 sec. 2a do not apply to fuel costs. In other words, the free private fuel consumption benefit purchased by the employer is a separate free benefit generating income for the employee. In this situation, its amount should be determined on the basis of Art. 11 sec. 2 of the PIT Act, which states that the monetary value of benefits in kind is determined on the basis of the purchase prices. This position was also taken by the Ministry of Finance in its letter of December 16, 2014.

Higher ZUS contributions and the use of a company car for private purposes

Under Art. 18 sec. 1 and art. 20 paragraph 1 of the Act of October 13, 1998 on the social insurance system and art. 81 sec. 1 of the Act of 27 August 2004 on health care services financed from public funds, the employee's income from the employment relationship is the basis for calculating social security and health insurance contributions. Thus, the value of the gratuitous benefit for using a company car for private purposes is the employee's income from the employment relationship and is subject to contributions.

Corporate tax deductible expenses and depreciation

Tax deductible costs are expenses incurred in order to achieve, maintain or secure a source of income. They include all expenses related to the operation of the vehicle (service, repair, replacement of wheels, etc.) and expenses incurred for the purchase of fuel (vans). If a company car is lent to an employee for his private purposes, then it is not possible to include these expenses in tax deductible costs. The company will therefore have to pay a much larger income tax. Another, quite significant, risk is the questioning by the tax office of the company's right to make depreciation write-offs on the value of lent cars. As it follows from Art. 23 sec. 1 point 45a lit. c shall not be considered as tax deductible costs, depreciation write-offs from the initial value of fixed assets and intangible assets put into free use. The exemption applies to the months in which these components were put into free use.