Using company property for private purposes and VAT

Website

The use of company assets for private purposes is a common situation. This happens mainly in the case of passenger cars or a flat that is the company's headquarters. These types of enterprise assets are used both by natural persons conducting business activity and by employees - not only for purposes related to business activity. How does this use of property outside the enterprise affect income tax issues? We explain in the article below!

What are fixed assets?

In order to discuss the topic of depreciation of the company's assets, which are also used for private purposes, one should start with fixed assets, or more precisely from their definition. The PIT Act specifies which components an entrepreneur can include in the register of fixed assets. Pursuant to Art. 22a in the register of fixed assets, you can include:

  1. structures, buildings and premises owned separately,

  2. machines, devices and means of transport,

  3. Other items.

Fixed assets to be included in the records must be complete and fit for use upon acceptance for use, and additionally:

  • the expected time of their use must be over 12 months,

  • must be owned or jointly owned by the taxpayer,

  • must be purchased or manufactured on their own,

  • must be used for business purposes.

An asset that has been included in fixed assets by the entrepreneur is subject to depreciation, i.e. the costs associated with its purchase are spread over time. Depreciation is calculated on the initial value of the fixed asset.

Depreciation of passenger cars used for mixed purposes

Cars entered in the register of fixed assets are very often used privately - both by the entrepreneur and by employees or contractors. Does private use of corporate assets affect the depreciation of the asset? Tax authorities, in their interpretation of 2016, present the opinion that this does not affect the amount of depreciation. If the car is used mainly for business purposes and only occasionally for private purposes, the taxpayer is entitled to deduct costs related to the wear and tear of the vehicle.

Such an opinion is contained in the individual interpretation of the Director of the Tax Chamber in Katowice of September 27, 2016 (No. 2461-IBPB-1-1.4511.460.2016.1.WRz):

(...) Considering the above, it should be stated that if the car in question meets the definition of a fixed asset (contained in Article 22a (1) of the Personal Income Tax Act), the Applicant may enter this car into the fixed assets register and intangible assets, business activities, and the tax costs may include depreciation made from its initial value, however, taking into account the limit indicated in art. 23 sec. 1 point 4 of the above-mentioned the law. (...) It is irrelevant to the possibility of including the above-mentioned tax-deductible costs. depreciation write-offs remain the fact that the Applicant will occasionally use this car for private purposes, because taking into account the literal wording of Art. 22a paragraph. 1 of the Personal Income Tax Act, the Act does not require that a given asset be used only for the needs of business activity, as a condition for including it in fixed assets and for making depreciation write-offs from its initial value. (...)

Attention!

You should remember about the applicable limit. According to the PIT Act (Article 23 (1) (4)), in the case of passenger cars, the total amount of depreciation cannot be higher than EUR 20,000 converted into PLN according to the average EUR exchange rate announced by the National Bank of Poland on the day the car is put into use .

The above-mentioned interpretation is very favorable for the taxpayer. In the past, however, the tax authorities were of a different opinion. They referred to the definition of a fixed asset, according to which it must be used only for business purposes (or rented or leased to a third party).

Such a sentence was expressed in the individual interpretation of the Director of the Tax Chamber in Łódź of September 30, 2013 (No.IPTPB1 / 415-472 / 13-3 / KO):
(...) Considering the above legal regulations and the description of the facts presented in the application, it should be stated that since a passenger car is used both for business purposes and for private purposes, it does not constitute a fixed asset. Therefore, the Applicant may not include depreciation charges on the car in question as tax deductible costs. (...)

The taxpayer must bear in mind that in the interpretations issued, one issue is emphasized by the tax authorities. Namely, each expense requires individual assessment in terms of including it as tax deductible costs, and it is the taxpayer's responsibility to prove the cause and effect relationship between the use of the car and the income earned. Due to the lack of a uniform position, the entrepreneur should remember about the possibility of obtaining an individual interpretation of tax law provisions. Anyone interested in issuing such an interpretation is required to complete the ORD-IN form.

Example 1.

Mr. Stanisław runs a sole proprietorship. It involves the assembly of industrial equipment. A frequent situation is to deliver devices directly to the customer's premises. Mr. Stanisław provides his services throughout the country. The car he bought was included in fixed assets because it was acquired with a view to using it for business purposes. The car is very roomy, so it serves Mr. Stanisław in delivering goods and materials to the customer. The vehicle is also occasionally used privately (e.g. when moving house). According to the interpretation from 2016, this type of use of a car does not prevent it from being entered into the fixed assets register and from calculating depreciation charges. However, it should be remembered that each case requires an individual assessment, therefore Mr. Stanisław has the opportunity to submit an application for an individual interpretation on the ORD-IN form.

Depreciation of real estate partially used for business purposes

The entrepreneur may also include buildings or premises as fixed assets. It is not uncommon for an entrepreneur's apartment to be listed as a place of business. In the case of real estate, only part of which is used for business purposes, the rules are clearly defined by law. Depreciation write-offs can then be calculated from the initial value of the property, however, it should be calculated as the ratio of the area used for business purposes to the total usable area.

Art. 22f sec. 4 of the PIT Act:

If only a part of the real estate, including a residential building or a flat, is used for business activity or rented or leased - depreciation write-offs are made in the amount determined from the initial value of the real estate, building or premises corresponding to the ratio of the usable area used for business activity, rented or leased, to the total usable area of ​​the property, building or premises.

Example 2.

Mr. Adam bought an apartment, which also serves as the company's headquarters. The apartment has 40m2, and the entrepreneur has allocated one room with an area of ​​20m2 for the purposes of his business. In order to determine the initial value, in the first step, he added up all the expenses he had to incur in connection with the purchase (he received the value of PLN 300,000). Then he calculated the percentage of the room in the whole apartment: (20m2 / 40m2) * 100% = 50%. Therefore, the property that Mr. Adam wants to include in the fixed assets register will have an initial value of PLN 150,000. Depreciation write-offs will be calculated from this initial value.

Company assets used for private purposes and the adjustment of costs

Pursuant to Art. 23 sec. 1 point 49 of the PIT Act is not considered to be tax deductible costs: expenses incurred for the purchase of gradually consuming tangible tangible assets of the enterprise, not included in the fixed assets in accordance with separate regulations - if it is found that these components are not used for business purposes but they serve the personal purposes of the taxpayer, employees or other persons, or are unjustified outside the company's premises.

Therefore, if an entrepreneur decides to include an asset in costs (not included in fixed assets), it should be used for business purposes. If, in the inventory of equipment, there is a component that will be used by an entrepreneur or other persons for private purposes, costs must be adjusted. The cost adjustment will be a consequence of withdrawing the equipment item from the records.

Example 3.

Ms Anna runs a sole proprietorship. She bought a laptop worth PLN 3,600. It was to be used in business activities for a period of about 10 months, therefore it was entered into the equipment register (due to the period of use below 1 year). After 10 months, Ms Anna decided to withdraw the laptop from the equipment records because, as she had anticipated, it turned out that it was used only for private purposes. According to the act, Ms Anna has to adjust the costs by the value of the laptop.

It is worth noting here that the correction will not apply to every piece of equipment that will be withdrawn from the file. If the value of the component is less than PLN 3,500, the adjustment does not have to be made, provided that the taxpayer demonstrates that the cost was rational and economically justified, and the use of the component contributed to the achievement of income or security, or the preservation of the source of income. It is up to the taxpayer to show that the purchase was made for corporate, not private purposes.

Employee's income from free use of company assets

If an employee uses a corporate asset for private purposes, they generate gratuitous benefit income. Such a situation may take place, for example, when using a company telephone for private purposes (when the employee does not reimburse the costs related to these calls). Another example is the use of a company car for non-business purposes.