Car in the company - business and mixed use - tax settlement

When using a car in a company, an entrepreneur must decide how to use it. He can choose between a mixed use of the vehicle for business purposes and a purely business use of the car. What are the tax consequences of using the car solely for business purposes and what are the mixed use? Answer below.

VAT deduction - rules

Pursuant to Art. 86 sec. 1 of the VAT Act, to the extent that goods and services are used to perform taxable activities, the taxpayer referred to in art. 15, has the right to reduce the amount of tax payable by the amount of the input tax, subject to article 22. 114, art. 119 paragraph. 4, art. 120 paragraph 17 and 19 and article. 124.

The amount of the input tax is the sum of the tax amounts resulting from the invoices received by the taxpayer for:

1. purchase of goods and services,
2. make all or part of the payment before purchasing the goods or providing the service.

It is important that in order to be able to deduct VAT, a given economic event must actually take place.

As indicated by the Provincial Administrative Court in Kraków in the judgment of February 26, 2021 (I SA / Kr162 / 20): "The right to reduce the amount of tax due by the amount of input tax when purchasing goods and services is not an independent right, but it is a conditional right, i.e. the right to the taxpayer to deduct input tax does not result from the mere fact of having a VAT invoice, but from the fact that the goods or services were purchased by the entity appearing on the invoice, as the buyer. In this sense, there is no legal theory of evidence in value added tax. Thus, a VAT invoice is not absolute evidence of an economic event that could not be opposed to other evidence. In case of doubts as to whether the invoice reflects real economic events, the tax authority is entitled to check the compliance of the invoice with this event ”.

The car in the company is used only for business purposes

Using the car only for business purposes allows the entrepreneur to deduct 100% VAT. This applies to VAT, among others, on fuel, leasing fees, consumables, car wash costs, servicing.

However, the entrepreneur must remember that certain conditions must be met to benefit from this type of deduction.

An entrepreneur-taxpayer may deduct 100% of the amount of input tax included in the invoices for expenses related to a passenger car in a situation where the vehicle is used only for business purposes. For the purposes of a full deduction of VAT, the fact that it is used exclusively for business purposes must be considered in objective terms. In order to make a full tax deduction, two cumulative conditions must be met:

1. the manner of using this vehicle by the taxpayer, especially in the terms of its use established by him, excludes its use for private purposes, and
2. the exclusion of private use must be confirmed by the vehicle mileage record kept by the taxpayer.

Taxpayers who use motor vehicles for business purposes only, for which they are required to keep records 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 related expense.

If the information referred to above is not submitted on time, the motor vehicle is considered to be used only for the taxpayer's business only from the date of its submission.

Motor vehicles are considered to be used exclusively for the taxpayer's business if:

1. the manner 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, excludes their use for purposes not related to business activity or
2. the design of these vehicles precludes their use for non-business purposes or makes their non-business use irrelevant.

Vehicle mileage records are 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 use of the vehicle solely for this activity.

Vehicle mileage records should include:

1. motor vehicle registration number;
2. day of beginning and end of keeping records;
3. the status of the mileage counter of the motor vehicle on the day of starting the record keeping, at the end of each accounting period and on the day of ending keeping the records;
4. an entry of the person driving a motor vehicle for each use of that vehicle, including:
1. next entry number,
2. date and purpose of departure,
3. description of the route (from where - where to),
4. the number of kilometers traveled,
5. name and surname of the person driving the vehicle

- confirmed by the taxpayer at the end of each tax period in terms of the authenticity of the entry of the person driving the vehicle, if he is not a taxpayer;

5. the number of kilometers traveled at the end of each accounting period and on the date of completion of record keeping.

The provisions of the VAT Act do not specify the manner in which the taxpayer is to ensure the elimination of private use of the motor vehicles used in his company for the purpose of full deduction of input tax. In the jurisprudence of administrative courts, the view has become established that, for example, it can be done by introducing regulations, contracts or orders, along with taking additional measures to secure their performance.

As indicated by the Provincial Administrative Court in Poznań in the judgment of July 16, 2015 (I SA / Po 1203/14): "The provisions of the act do not specify how the taxpayer is to ensure that the taxpayer eliminates the private use of motor vehicles used in it for the purpose of full deduction of input tax. . However, it should be pointed out that, for example, it can be done by introducing regulations, contracts, orders along with taking additional measures to secure their performance. These activities must be tailored to the specifics of the company's operations and the way vehicles are used for its purposes. The rules for the use of vehicles set by the taxpayer must objectively confirm that the vehicle is used exclusively for business purposes and that there is no possibility of private use of these vehicles. '

Example 1.

The entrepreneur has 10 vehicles in his fleet. They are used exclusively for his business activities. Their use is in accordance with internal regulations and entrusted to employees. They keep records for VAT purposes. After a business trip, the employee parks the vehicles in front of the house. Could this then be considered to be a mixed use of the vehicle?

Merely parking the vehicle at home allows the employee to potentially use the car for private purposes. As long as we are dealing with the so-called human factor, as long as there is a risk that a given vehicle may potentially be used for purposes other than those related to the taxpayer's business activity. This may also be the case when it is not parked at the employee's place of residence. This circumstance cannot be completely eliminated, therefore it is only about creating such mechanisms and introducing such rules for the use of vehicles that will give the maximum guarantee of their use only in the taxpayer's business activity.

Therefore, it is about introducing such rules for the use of company vehicles (regulations, statements, control) that will eliminate the possibility of uncontrolled use of company vehicles for private purposes. However, each case should be considered individually, on the basis of specific circumstances and the documents in force at the enterprise regulating the issue of vehicle use.

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The company's car is used in a mixed manner

In the case of expenses related to motor vehicles, the amount of the input tax referred to in article 1. 86 sec. 2, is 50% of the tax amount:

1. resulting from the invoice received by the taxpayer;
2. due on account of:
1. the provision of services for which, pursuant to Art. 17 sec. 1 point 4, the taxpayer is their recipient,
2. delivery of goods for which, in accordance with Art. 17 sec. 1 point 5, the taxpayer is their buyer,
3. intra-Community acquisition of goods,
4. in the case referred to in Art. 33a (simplified procedure);
3. resulting from the received customs document, import declaration in the case referred to in Art. 33b, and the decisions referred to in article 1. 33 paragraph 2 and 3 and article. 34.

Expenses related to motor vehicles include (similarly to purely business use) expenses related to:

1. the acquisition, import or manufacture of these vehicles and the acquisition or import of their component parts;
2. use of these vehicles on the basis of a rental, lease, leasing or other contract of a similar nature related to this contract, other than those listed in point 3;
3. purchase or import of motor fuels, diesel oil and gas used to power these vehicles, repair or maintenance services for these vehicles and other goods and services related to their operation or use.

It is assumed that each motor vehicle with a permissible total weight of up to 3.5 tons - due to its design features - is in principle used for “mixed” use, and therefore all expenses related to it are subject to a deduction of up to 50%.

In view of the above, VAT on VAT, among others, on fuel, leasing fees, consumables, car wash costs, servicing costs, may be deducted in 50%, provided that the event actually took place and the entrepreneur is able to prove their incurrence and the amount.

Example 2.

Jan Kowalski runs a business. In May 2021, he concluded a passenger car lease agreement. The cost of the car is PLN 100,000.00 net (PLN 123,000.00 gross). The initial payment was PLN 10,000.00 net (PLN 12,300.00 gross), documented with a VAT invoice. Due to the fact that the car will be used in a mixed manner - for business and private purposes, Jan Kowalski will be able to calculate VAT in the amount of PLN 1,150.00. The leasing installment amounts to PLN 1,000.00 net (PLN 1,230.00 gross). VAT from each installment that can be deducted is PLN 115.00.