Withdrawal of a car from activity and the obligation to correct VAT

Entrepreneurs have the right to include the car in the company's fixed assets, if it will be used in business activities. It is also natural to withdraw it, for example for private purposes. Then, however, entrepreneurs should remember about the possible correction of VAT.

Pursuant to Art. 91 of the VAT Act, in the case of goods which, pursuant to the provisions on PIT, are classified by the taxpayer as fixed assets subject to depreciation, there may be an obligation to correct the input tax deducted during the purchase. Therefore, this applies to cars that are fixed assets in the company, for which there was a right to deduct VAT in whole or in part. They were therefore purchased for taxable activities and their purpose is changed by withdrawing them for private use. The entrepreneur does not pay VAT from the transfer itself.

However, the correction will only be obligatory if the vehicle is withdrawn within a certain time:

• if the value of the vehicle does not exceed PLN 15,000 - adjustments are made in the case of its sale up to 12 months from its commissioning,

• if, on the other hand, the value of the car is higher than PLN 15,000 - the taxpayer makes the correction in the next 5 years. The annual adjustment relates to one fifth of the amount of input tax charged on its acquisition.

Therefore, the obligation of correction will not arise at all when the passenger vehicle is withdrawn from activity at later dates. The correction will also not be necessary when handing over a truck for private use. In such a case, there will be no change of use of the car due to the fact that the transfer activity will be subject to VAT.

Example.

In March 2011, the taxpayer bought a passenger car for the company on an invoice. At the same time, it took advantage of the possibility of deducting VAT in the amount of 60%, not more than PLN 6,000. In May 2013, it plans to withdraw it for private purposes, which is related to the change in the nature of business activities and the lack of need to use the car for business purposes. Thus, the purpose of the vehicle is changed. In such a case, an obligation to correct VAT will arise, as the 5-year period has not yet elapsed. Therefore, the taxpayer should return 3/5 of the amount deducted earlier to the tax office.

Corrections are made in the tax return submitted for the first tax period of the year following the tax year for which the correction is made, and in the case of termination of business activity - in the tax return for the last tax period.

The taxpayer will also not be obliged to make an adjustment if the right to deduct the input tax was not available at all. This will be the case when a used vehicle is purchased on a VAT-margin invoice, purchased from a private person under a sales contract or if the taxpayer is subject to VAT exemption.