Passenger car in the company - limitations in cost settlement

Currently, having passenger cars in business has become a certain standard. It is not only a comfort during business trips, but also saves time. A common practice among entrepreneurs is the use of vehicles entered in the register of fixed assets or used on the basis of an appropriate contract, e.g. leasing, lending. Many taxpayers have also decided to use their own passenger car for both private and business purposes.

The use of a car in business activity is mainly associated with the costs of its maintenance during its current use, incl. for the purchase of fuel, spare parts, repair costs, etc. However, taxpayers must bear in mind the limitations in relation to the settlement of expenses for a passenger car in tax deductible costs pursuant to Art. 23 of the PIT Act.

From the definition provided in Art. 5a, point 19a, it follows that a passenger car is any motor vehicle with a maximum permissible weight not exceeding 3.5 tons - structurally designed to carry no more than 9 people, including the driver.

Passenger car as a fixed asset

Pursuant to the provisions of the PIT Act, taxpayers have the right to enter a passenger car into the register of fixed assets. Then the initial value of the vehicle is accounted for in tax deductible costs based on the depreciation write-offs made. The reservation is, however, that the vehicle is owned or jointly owned by the taxpayer and is used for the purposes related to the conducted business activity. Additionally, it should be complete and fit for use on the day it is entered into the records, and the expected useful life should be longer than one year.

Important! The depreciation write-offs of a passenger car entered in the register of fixed assets constitute a tax deductible cost from the conducted business activity.

However, the act provides for certain restrictions on the depreciation of passenger cars. According to Art. 23 sec. 1 point 4 may not constitute a tax deductible cost, depreciation write-offs in part determined from the value of the car in excess of the equivalent of EUR 20,000. Conversion into zlotys is made according to the average euro exchange rate announced by the National Bank of Poland on the day the vehicle is put into use.

Example 1.

The taxpayer purchased a passenger car worth PLN 95,000 and then entered it into the fixed assets register. The average exchange rate announced by the National Bank of Poland on the day of admitting the vehicle to the register was 4.30 PLN / EUR, so the conversion limit is:

4.30 PLN / EUR x 20,000 EUR = 86,000 PLN

Importantly, pursuant to Art. 23 sec. 1 point 45, the tax cost may not be depreciation write-offs from the initial value of passenger cars purchased with funds received, for example, from an EU subsidy.

Good to know! Fixed assets with a value below PLN 3,500 are not subject to depreciation. Expenses for the purchase of passenger cars belonging to this group may be classified as a one-off tax-deductible cost in the period when the vehicles are put into use.

Any expenses incurred in connection with the use of a passenger car that is a fixed asset in the company may be recognized by the taxpayer as tax deductible costs in the full amount. The only exception are expenses for voluntary car insurance, which is discussed later in this article.

Passenger car not entered into the register

Another solution often used by entrepreneurs is the use of their own passenger cars - not entered into the register of fixed assets or made available on the basis of a civil law contract (e.g. rental). Then the expenses related to the use of a given vehicle in the enterprise should be accounted for in accordance with the wording of Art. 23 sec. 1 point 46.

On the basis of the above-mentioned regulations, a taxpayer using passenger cars that are not entered into the register of fixed assets or owned by him is obliged to keep a record of the vehicle mileage for the purposes of income tax. The obligation to conduct the so-called"Kilometers" results from the need to distinguish what amount of expenses incurred for the use of the vehicle actually relates to the business activity.

Expenses related to the use of passenger cars, as a rule, may be included in tax deductible costs only up to the limit resulting from the vehicle mileage records. The determination of the abovementioned limit consists in multiplying the number of kilometers actually traveled within the scope of the conducted activity by the rate for one kilometer of mileage. Currently, the rates for passenger cars are:

• PLN 0.5214 - with an engine capacity of up to 900 cm3,
• PLN 0.8358 - with engine capacity above 900 cm3.

ATTENTION! If the vehicle mileage register is not kept, the expenses incurred for the maintenance of a passenger car not included in the fixed assets register cannot be included in the tax deductible costs at all.

In accordance with the principle of operation of the vehicle mileage register, if the value of expenses incurred is lower than the limit resulting therefrom, then the entire value of the expenses is allocated to the tax deductible costs. Otherwise, only expenses covered by the set limit are the costs, while the surplus is transferred to the next period (month) of a given tax year.

In addition, the entrepreneur has the right to increase tax costs by expenses incurred by employees using private cars for business purposes. However, in this case also there is a limitation resulting from Art. 23 sec. 1 point 36, according to which employees are required to keep records of the mileage of the vehicle, on the basis of which the value of the costs recoverable by the entrepreneur is determined.

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Among the expenses for maintenance and day-to-day operation that can be accounted for as part of the mileage allowance are, among others purchase of fuel, insurance premiums, spare parts, expenses for current repairs, inspections, parking fees or highway tolls. The exception, however, are fees for rent under a rental or lease agreement for a passenger car used in the course of business activity. Their settlement takes place beyond the limit of the vehicle mileage records in the full amount - directly to the tax deductible costs. The above was confirmed in the general interpretation of the Minister of Finance of November 8, 2013.

Car trade and costs

In the case of taxpayers engaged in the sale of cars in the field of business activity, there are no restrictions on the settlement of vehicle use costs. Any expenses incurred for their maintenance and operation constitute an expense in tax terms, as these cars are the company's commercial goods. Therefore, taxpayers are not required to keep records of the mileage of vehicles intended for sale, although they have not been entered into the company's assets. The only exception are car insurance premiums, which may constitute tax deductible costs up to the limit referred to in Art. 23 sec. 1 point 47.

Car insurance - another limitation

A passenger car is subject to both compulsory and voluntary insurance, the acquisition of which is dependent on the taxpayer. While there are no restrictions in the case of the former, in the case of voluntary insurance - depending on the value of the vehicle - yes.

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Pursuant to Art. 23 sec. 1 point 47, car insurance premiums in the amount exceeding their part determined in the proportion equal to the equivalent of EUR 20,000, in the value of the car adopted for insurance purposes, cannot be counted as tax deductible costs. Conversion into zlotys - in the case of natural persons - is made according to the sale rate of foreign currencies announced by the National Bank of Poland on the date of conclusion of the insurance contract. Importantly, the above provisions only apply to motor vehicle insurance (AC), the value of which depends on the value of the passenger car.

Example 2.

The same taxpayer (from the first example) also signed a voluntary AC insurance contract on the day the vehicle was put into use. The value of the car for insurance purposes is the same as the purchase price and amounts to PLN 95,000, while the selling rate of NBP currencies was: 4.20 PLN / EUR.

The percentage of the insurance premium that can be included in tax costs is therefore:

20,000 EUR x 4.20 PLN / EUR / 95,000 PLN x 100 = 88.42%

- the remaining 11.58% is excluded from tax deductible costs.

Attention! The limitation in recognizing premiums for voluntary insurance as tax deductible costs applies to each passenger car used in business activities. Thus, it includes both vehicles entered and not entered into the register of fixed assets, to which the mileage is kept.

The inclusion in costs of expenses for post-accident repair or liquidation of vehicles also depends on the possession of voluntary car insurance. The relevant regulation is contained in Art. 23 sec. 1 paragraph 48, according to which they are not tax deductible costs:

• losses arising from loss or liquidation, and
• expenses incurred on accident repairs,

- cars not covered by voluntary insurance.

The car is under operational lease

According to the PIT Act, operating lease occurs in a situation where one of the parties (the financing party) gives the other party (the beneficiary), subject to depreciation, for paid use or use and collection of benefits under the conditions specified in the Act. The fees set out in the leasing contract (leasing installments, initial payment), incurred by the taxpayer during the contract period for the use of - in this case - a passenger car - are fully recognized as tax costs.

Leasing agreement for people running a business:

• should be concluded for a specified period constituting at least 40% of the normative depreciation period, if the subject of the contract are movables subject to depreciation write-offs. In the case of passenger cars, the standard amortization period is five years, therefore the minimum lease term cannot be shorter than two years;
• the sum of the fees stipulated in the leasing contract, reduced by the due tax on goods and services, corresponds at least to the initial value of the fixed assets.

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Based on Article. 23 sec. 3b, it is also considered that the current expenses incurred for the maintenance and operation of the vehicle that is the subject of the lease agreement are not settled within the mileage allowance. Therefore, a taxpayer using a passenger car on the basis of such an agreement has the right to recognize the full value of the expenses for its maintenance as tax deductible costs, with the exception of the aforementioned voluntary insurance.