Recognition of the initial payment for an operating lease car in the costs

Most entrepreneurs use passenger cars for this purpose. However, not all of them are fixed assets of the company due to the fact that not all taxpayers can afford to buy a vehicle for cash or in the form of a bank loan. One of the available sources of financing is operating leasing, which is also a method of tax optimization in the company. Let's check what the inclusion in the costs of the initial payment should look like in the case of an operating lease of a passenger car!

What is an operational lease initial payment?

The initial payment (also known as the initial rent or own contribution) is one of the components distinguishing the two most common leasing contracts in economic turnover - operating and financial leasing. It occurs only in the case of operating lease and usually its size significantly differs from the amount of other lease installments. The initial payment is made by the lessee before the start of the lease, therefore the commencement of the contract is closely related to the initial payment.

One-off recognition of a passenger car in the initial fee

Due to the fact that the initial payment is necessary when concluding an operating lease agreement, it can be considered a tax expense. Pursuant to Art. 22 sec. 1 of the PIT Act, tax deductible expenses are expenses incurred in connection with obtaining, maintaining or securing the source of income. Additionally, such expenses cannot be included in Art. 23 of the PIT Act, i.e. in the catalog of expenses that are not tax costs. In a situation where the initial fee relates to a passenger car used in the business, it can be considered a tax expense and recognized once in the tax revenue and expense ledger.

The initial payment should be recognized as a one-off fee when it is incurred, because it is an expense related to the very conclusion of the leasing contract.

The confirmation of the above procedure is the individual interpretation issued by the Director of the National Tax Information of 23 June 2017, ref. No. 0112-KDIL5.4010.57.2017.2.KS, according to which:

'(...) the initial leasing fee determines the conclusion of the contract, i.e. it should be associated not so much with the entire contract understood in terms of time, but with the moment of its conclusion. It concerns not so much the duration of the leasing service, but the right to use it in general. Thus, it is not a fee for the entire duration of the lease. Hence, this fee is a one-off expenditure related to the conclusion of the leasing contract. There is no obligation to settle it in proportion to the duration of the contract. Thus, the initial fee should be counted as tax deductible costs on a one-off basis on the date it is incurred. The initial fee is therefore a cost indirectly related to income from business activities. "

Moreover, in accordance with the position of the Director of the National Tax Information in the individual ruling of October 10, 2017, ref. No. 0111-KDIB1-2.4010.249.2017.1.ANK the initial payment may be included in the costs on a one-off basis on the date of incurring the expense due to the spontaneous, non-returnable and not assigned to individual lease installments nature of this fee. Therefore, the entrepreneur should not make a proportional settlement of this cost in relation to the duration of the leasing contract in the form of accruals.

Example 1.

Mr. Aleksander runs an IT company and settles costs based on the accrual method. In 2021, he concluded an operating lease of a passenger car, in connection with which he received an invoice for the initial rent. How should the initial fee be accounted for?

In the case of the initial payment, the method of accounting for costs is irrelevant as it is an indirect cost of the business. Therefore, there should be a one-time recognition of the initial payment in the costs on the day it is incurred, i.e. on the date of issuing the invoice by the leasing company.

Including the initial payment in the costs depending on the date of concluding the lease agreement

From January 1, 2019, along with the amendment to the PIT Act, the method of settling expenses related to a passenger vehicle, including financed by operating lease, has changed. Therefore, in the case of leasing contracts concluded by the end of 2018, the entrepreneur has the right to include the entire value of the initial payment in tax costs, without taking into account additional limits.

Example 2.

Mr. Łukasz purchased a passenger car financed with an operating lease. The contract was concluded in December 2018. On December 31, 2018, he received an invoice for the initial payment. How should it be included in tax costs?

Due to the fact that the leasing contract was concluded before 2018, Mr. Łukasz has the option to include in tax costs the full value of the initial payment on December 31, 2018.

Art. 8 sec. 1 of the act of 23 October 2018 amending the act on personal income tax, the act on corporate income tax and some other acts
The provisions of the Acts amended in Art. 1 and art. 2, in the current wording.

From January 1, 2019, pursuant to Art. 23 sec. 1 point 47a of the PIT Act, fees resulting from the car leasing agreement in the amount exceeding the proportion in which the amount of PLN 150,000 remain to the value of the passenger car being the subject of the lease are not tax deductible costs. This means that in the case of passenger vehicles under operating lease, the value of which exceeds PLN 150,000, the entrepreneur may only include the contract value up to PLN 150,000 in tax costs.

Example 3.

On April 2, 2021, Ms. Patrycja concluded an operating lease agreement for a passenger car, the value of which is PLN 90,000. Can the initial fee be included in the costs in full, or is Ms Patrycja obliged to apply a cost limit?

Due to the fact that the value of the vehicle did not exceed PLN 150,000, Ms Patrycja does not limit the value of both the initial payment and the individual leasing installments, despite the conclusion of the leasing contract in 2021.

Example 4.

Ms Sandra takes advantage of the VAT exemption and bought a luxury passenger car, which she financed with an operating lease. The value of the vehicle in the contract is PLN 300,000 gross. On March 1, 2021, she received an invoice for an initial payment of PLN 50,000. How should the initial fee be accounted for?

Due to the fact that the leasing contract was concluded in 2021 and the value of the vehicle exceeds PLN 150,000, Mrs. Sandra is obliged to apply a cost limit under Art. 23 sec. 1 point 47a of the PIT Act. Thus, the invoice for the initial payment should be included in tax costs on a one-off basis, taking into account the limit of PLN 150,000, i.e. in the amount of PLN 25,000.

Calculations:

Aspect ratio: 150,000 / 300,000 = 0.5

The value of the expenditure can be included in the costs: 0.5 x 50,000 = 25,000 PLN

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How do I post an invoice for an initial payment?

In the wfirma.pl system, the costs of operating lease of a passenger car are settled automatically after the car is entered into the vehicle register. The system records each expense in the records, including the invoice for the initial payment, in accordance with the applicable limits.

First, add the vehicle to the system via the tab: RECORDS »VEHICLES» ADD VEHICLE. After completing the vehicle data, OPERATIONAL LEASE AND RENTAL should be selected as the Ownership Form. As a result, an additional field will appear in which you should specify whether the value of the vehicle exceeds PLN 150,000. If so, uncheck the Value below 150,000 box. PLN, thanks to which there will be additional fields regarding the date of the contract and the value of the car.

In order to post the invoice for the initial payment and subsequent leasing installments, go to the tab: EXPENSES »ACCOUNTING» ADD »VAT INVOICES» LEASING OR RENTING A CAR. After filling in the required fields, just select the vehicle to which the expense relates and the system, after saving, will include the initial payment in column 13 of the KPiR - Other expenses up to the limit and in the VAT purchase register in accordance with the right to deduct (50% or 100%).

To sum up, the initial fee is recognized as a one-off cost and is not subject to settlement over time, because, according to the interpretation line, this expenditure is an indirect cost and should be included in the KPiR on the day it is incurred. The method of recognizing the initial payment for the operating lease of a passenger car does not depend on the date of concluding the lease agreement. This date affects only the amount of the initial fee that can be recognized in tax deductible costs.