Do you decide on a 50% VAT deduction for cars? Watch out for the tax office!

The first day of April this year brought huge changes for those entrepreneurs who use motor vehicles in their companies. It was then that the amendment to the VAT Act and some other acts came into force, introducing many modifications to the deduction of VAT on cars. In connection with them, two fundamental questions arise:

• Does the decision to deduct 50% of the vehicle's VAT mean an automatic admission to use it both in the company and privately?
• What are the consequences of such a decision in the context of cars introduced to the company's fixed assets?

VAT deduction on motor vehicles from April 1, 2014.

Starting from April 2014, the taxpayer may deduct 50% or 100% VAT from motor vehicles weighing up to 3.5 tons - depending on the way they are used.

If the vehicle is used only in the company (for business purposes), then there are no restrictions on the deduction of tax.

Art. 86a sec. 4 of the VAT Act Motor vehicles are considered to be used exclusively for the taxpayer's business if: 1) the method of using these vehicles by the taxpayer, in particular those specified in the rules of their use established by him, additionally confirmed by the vehicle mileage records kept by the taxpayer for these vehicles, excludes their use for purposes not related to economic activity or 2) the design of these vehicles precludes their use for purposes not related to business activity or makes their use for non-business purposes irrelevant.

The amended act provides for three conditions that are necessary for 100% tax deduction:

• reporting the car to the Tax Office within the deadline specified in the Act (VAT-26 form),
• keeping vehicle mileage records for VAT purposes,
• introduction of the regulations for the use of the vehicle.

If the taxpayer also uses the vehicle privately, then it is possible to deduct 50% VAT (except for fuel) for passenger cars. In this situation, you do not need to drive mileage for VAT purposes.

Important! For vehicles weighing up to 3.5 tonnes used for private and business purposes from April 1, 2014 to June 30, 2015, the taxpayer will be able to deduct 50% VAT on operating expenses (repair, car wash, parts, etc.). Importantly, during this period, he will not be entitled to a 50% deduction of VAT on fuel purchases. From 1 July 2015, the taxpayer will be able to deduct 50% of the tax on fuel and other expenses related to their operation from this type of car.

50% VAT deduction and depreciation

The PIT Act says that, among others, fixed assets. These are the assets:

• owned or jointly owned by the taxpayer,
• acquired or manufactured on its own,
• complete and fit for use on the day of commissioning,
• used for more than one year,
• used by the taxpayer as part of his business or put into use on the basis of a rental, lease or leasing agreement.

Online Tips

Do you run a company and have questions?

Take advantage of the expert advice of the Entrepreneur's Guide

Online advice for businesses

In the case of a fixed asset used only for business purposes, it is clear that the full depreciation write-offs can be classified as tax costs.

If the taxpayer chooses a 50% VAT deduction and - consequently - does not report the vehicle (fixed asset) to the Tax Office and does not start keeping mileage records, then it may attract the interest of the tax authorities. In the definition of a fixed asset, as mentioned earlier, it was indicated that it should be used only for corporate purposes - in such a situation, there is no doubt as to including depreciation charges as costs. In turn, if the taxpayer does not report the car to the Tax Office, in this way he indirectly admits that the car is also used for private purposes.

In such a situation, is the taxpayer entitled to recognize only part of the expenses related to the car, including depreciation? Tax experts advise not to go to extremes. As an argument, they mention that the previous regulations limited the possibility of deducting VAT when buying passenger cars to 60%, but not more than PLN 6,000 - or 50% and PLN 5,000, respectively. And that also implied that the vehicle was not fully used for business purposes. The same suspicion was made for the purchase of fuel for them. And yet the tax authorities did not transfer these suspicions to the PIT Act, limiting the possibility of depreciation or including some expenses in costs.

 

It should be noted that the decision on 50% tax deduction does not always clearly mean that the car is used both for private and corporate purposes. In making such a choice, the entrepreneur may be motivated by the desire to avoid complicated paperwork or by caution - if he expects that in the future the car may be needed for personal purposes. Of course, the taxpayer is obliged to explain all ambiguities to the representatives of tax authorities, but the choice of the 50% VAT deduction alone is not decisive - strong arguments count.