Advance payment for the purchase of a car and the moment of reporting for VAT deduction

Service-Tax

One of the major purchases for almost every company is an asset in the form of a passenger car. Entrepreneurs either purchase the vehicle in question as the company's property or purchase the right to use it. In both cases, they may decide that the passenger car will be used only for the purposes of the business activity, and therefore it will be subject to 100% VAT deduction from the moment of purchase. This is where the problem arises. Will the advance payment for the purchase of a car be the first expense? Or maybe another moment will be the first expense?

Conditions for deducting 100% VAT on a passenger car

Pursuant to Art. 86a paragraph 1 point 1 of the VAT Act, if the taxpayer incurs expenses related to motor vehicles, the amount of input tax that can be deducted from purchase invoices and consumable parts is 50%.

The above provision will not apply when motor vehicles are used exclusively for the taxpayer's business activities.

What does it mean that a passenger car is used exclusively for business purposes?

Pursuant to Art. 86a paragraph 4 point 1 of the VAT Act, motor vehicles are considered to be used only for the taxpayer's business if:

  • how they are used by the taxpayer, and

  • rules for the use of motor vehicles established by him, and

  • the vehicle mileage record kept by the taxpayer for these vehicles, which should be kept from the date of commencement of the use of the motor vehicle solely for the taxpayer's business activity until the date of termination of the vehicle's use only for this activity,

- collectively exclude the use of the vehicles concerned for non-business purposes.

Exceptionally, the taxpayer will not be obliged to keep mileage records in the case of motor vehicles intended solely for:

  • resale,

  • sales, in the case of vehicles manufactured by the taxpayer,

  • handing over for use on the basis of a rental, lease, leasing or other similar agreement,

- if the resale, sale or use of these vehicles for consideration is the subject of the taxpayer's business.

Beware of being late with the VAT-26 notification

It should be remembered that in accordance with Art. 86a paragraph 13 of the VAT Act, in the event of failure to submit the VAT-26 notification information on time, it is considered that the motor vehicle is used only for the taxpayer's business activity only from the date of its submission.

Mandatory declaration to the tax office of the vehicle that is to be used exclusively for business purposes

Taxpayers using the vehicle only for business activities for which they are required to keep a record of the vehicle mileage are required to submit information about these vehicles to the Head of the Tax Office within 7 days from the date on which they will incur the first expenditure related to these vehicles.

Advance payment for the lease of a passenger car

An entrepreneur who is an active VAT payer concluded with the lessor on October 20, 2017. an operating lease agreement for a passenger car. The entrepreneur made an advance payment on account of the concluded contract on November 3, 2017. to the leasing company's account and in the same month received an advance invoice for this payment. In this case, if the entrepreneur wants to take advantage of the full deduction of VAT on expenses related to cars used exclusively in business activities, he is obliged to:

  • submission by November 10, 2017. VAT-26 form to the tax office competent for the address of residence, which provides information on motor vehicles used exclusively for business activities,

  • establishing the regulations for the use of this vehicle in the company, including the principles that exclude any possibility of private use,

  • keeping records of the mileage of the vehicle from the first day of using a given vehicle solely for business purposes.

Advance payment for the purchase of a passenger car

An entrepreneur who is an active VAT taxpayer paid on October 6, 2017. an advance payment to the car showroom for the purchase of a passenger car, and on October 10, 2017. has received an advance invoice from the dealer for the full amount of the advance payment.

If the entrepreneur has decided that the purchased car will be intended solely for business activities, the first expenditure should be treated as the first expense paid by the entrepreneur on October 10, 2017. an advance payment, i.e. an expense related to an activity subject to VAT. The entrepreneur paying the advance on that day will have no more than October 17, 2017. including the declaration of a given passenger car using the VAT-26 form as a vehicle used exclusively for the purposes of business activity. If he manages to make this notification within the above-mentioned period, then he will be entitled to deduct the full amount of VAT resulting from the advance payment, while maintaining the other conditions for the possibility of full VAT deduction from subsequent operating expenses.

In the case of submitting the VAT-26 application after October 17, 2017. the entrepreneur will be able to deduct 50% of VAT from the advance payment, while the full right to deduct VAT will be granted to him only from the date of submission of the VAT-26 declaration.

Advance payment when changing financing for the purchase / use of a passenger car

The entrepreneur ordered a passenger car worth PLN 150,000 gross. Due to the low availability of this model, the car dealer demanded from the owner of the company an advance payment in the amount of PLN 50,000 gross, which was paid on November 14, 2017. The remaining part of the amount to be paid was to be financed with a car loan, but due to the receipt of a very favorable leasing offer, the entrepreneur eventually used it. The lessor until the end of November 2017. purchased the passenger car in question and paid the remainder of the value of the vehicle. December 4, 2017 an operating lease agreement was concluded, and the lessor issued the entrepreneur the first invoice for the initial payment in the amount of PLN 50,000. The conclusion of the leasing contract resulted in the fact that the advance payment was not due between the entrepreneur and the car dealer. Entrepreneur, wanting to avoid reimbursement to the account and re-banking operations, December 11, 2017. signed a tripartite set-off agreement between the dealer, lessor and lessee entrepreneur.

In this situation, the date of incurring the first expenditure related to the above vehicle will be the date of signing the agreement on mutual deductions, i.e. December 11, 2017, taking into account the concluded on December 4, 2017. an operating lease agreement. Thus, the entrepreneur will be able to do so until December 18, 2017. submit a declaration using the VAT-26 form of the above passenger car as used only for business activities and deduct at the same time 100% VAT from the invoice for the initial lease payment, while maintaining the other conditions for the possibility of full VAT deduction from subsequent operating expenses incurred.

Here, one should refer primarily to Art. 498 § 1 of the Civil Code, which indicates that in the event that two persons are both debtors and creditors to each other, each of them may set off their claim against the claims of the other party, if the subject of both claims is money or things of the same quality, marked only as to the species, and both claims are due and may be pursued before a court or other state authority.

Moreover, as a result of the set-off, both claims redeem each other up to the amount of the lower claim. On the other hand, pursuant to Art. 499 of the Civil Code, the deduction is made by a declaration made to the other party. Mutual set-off of receivables is considered to be payment, which results in the extinction of the obligation relationship. However, the date of this payment (deduction) should be the date of signing the implementation of the agreements contained in the declaration.

The same opinion is shared by the position of the Director of the Tax Chamber in Katowice expressed in the individual interpretation of March 17, 2016. with reference number IBPP2 / 4512-1113 / 15 / ICz.