Changing the form of using a passenger car - VAT consequences

The choice of the form of using a passenger car in the company is not permanent, therefore the taxpayer may change this matter. However, such a modification gives rise to certain obligations. What? You will find the answer in this article.

VAT deduction for a passenger car - regulations

The amendment to the tax law in 2014 in the context of the method of deducting VAT on passenger cars caused considerable confusion among entrepreneurs. The biggest problem was the choice of the form of use of this type of vehicle, which is the foundation for the deduction of VAT from expenses for day-to-day operation.

As a reminder, as of April 1, 2014, Art. 86a, which comprehensively explains the problem of VAT settlement. From that moment, taxpayers whose company vehicles do not exceed 3.5 tonnes and, apart from the exceptions specified in this act, had to decide on the deduction of VAT from the expenses incurred in connection with the use of this type of vehicle. There are two options to choose from: 100% or 50% VAT deduction.

50% VAT deduction - mixed system

The basic and least problematic solution turned out to be the choice of the mixed form. In line with its assumption, the company passenger car is used for business purposes, but also for private purposes. In these circumstances, the taxpayer acquires the right to deduct only half of the value of the VAT. This means that the entrepreneur will deduct only 50% of the tax from the invoice for the purchase of a passenger car, from expenses for the purchase of parts, repair costs and other expenses related to the operation of this vehicle. Importantly, in such a case, there is no right to deduct VAT on the purchase of fuel - in accordance with Art. 12 sec. 1 of the Act amending the Act on tax on goods and services and certain other acts of February 7, 2014, it is impossible until June 30, 2015.

100% VAT deduction - car for business purposes only

The second option allows the taxpayer to fully deduct VAT on all expenses incurred in connection with the use of the passenger vehicle, including the purchase of fuel. The basic problem is the legal requirement - the vehicle must be used exclusively for business purposes, without the possibility of using it for private purposes.This choice entails a statutory obligation to notify the head of the competent tax office by submitting a VAT-26 declaration and keeping records of the vehicle mileage along with information about the mileage counter.

The form of using a passenger car can be changed - how and when?

The choice of the form of use of a passenger vehicle with regard to VAT deduction is not permanent. This issue was not mentioned in the VAT regulations either, but the method of settlement should not be changed regularly. Before making a decision, it is worth considering and approaching the problem with common sense. If there is a need to change the form of VAT deduction for the vehicle (from full to partial or vice versa, the decision should be justified by objective circumstances. control.

Changes to the form of VAT settlement on operating expenses should be made by reporting or updating the data at the tax office using the VAT-26 form.

An entrepreneur who submits a passenger car for the first time to fully deduct VAT from operating costs must submit the said declaration to the head of the competent tax office within 7 days from the date of incurring the first expenditure. However, in the opposite situation, when the taxpayer decides that he wants to change the form of passenger vehicle use to a mixed system, he must report the VAT-26 update to the tax office the day before the declared change will apply.

Do you want to change the form of car use? A positive or negative VAT correction awaits you!

Taxpayers who decide to change the form of using a passenger vehicle in the company should know that it may be necessary to correct the input VAT on its purchase. This is due to Art. 90b of the VAT Act and applies to entrepreneurs who decide to make such a modification before the expiry of 60 months from the month in which the vehicle was purchased, imported or commissioned. The exception applies to cars with a value of less than PLN 15,000 - in this case, the correction period covers 12 months from the indicated dates.

Whether the correction will be necessary or voluntary depends on "in which way" the rules of using the vehicle in the company have been changed. In a situation where the change goes from a full deduction of VAT to a mixed deduction (half and half), then it will be necessary to correct the deducted tax on goods and services. This is because originally the taxpayer was entitled to a full deduction of VAT, so after the change, he must return the unduly deducted value, i.e. make a negative correction.

In the opposite situation, if the taxpayer changes towards mixed VAT deduction - full VAT deduction, he will acquire the right to correct the input VAT plus and will be able to deduct half of the VAT value, which he could not have done before.

Corrections should be made in a manner proportional to the previous period of using the car in the company. For the calculation of the adjustment, start with the month in which the change in use took place.

Changing the form of using a passenger car - correction of input VAT in practice

Example 1. VAT correction to the minus ...

The entrepreneur purchased a passenger car with a net value of PLN 43,478.26, PLN 10,000 of input VAT. In May 2014, this car was entered into the fixed assets register as a car intended only for company purposes, with full VAT deduction. Thus, in the VAT-7 declaration for May 2014, the entrepreneur deducted PLN 10,000 of the input tax charged when purchasing a car.

In August 2015, after 15 months of use, the entrepreneur decided to use the car for mixed purposes. There are 45 months left to the end of the correction period, so the following is left to the proportional deduction of VAT:

45/60 * 10,000 = PLN 7,500.

When handing over the car for mixed purposes, the taxpayer has the right to deduct only 50% of VAT - therefore 50% * PLN 7,500 = PLN 3,750. In the declaration for August 2015, the taxpayer should correct the VAT minus by PLN 3,750, the tax deducted when purchasing the car.

Example 2. Plus VAT correction ...

The entrepreneur purchased a passenger car with a net value of PLN 43,478.26, PLN 10,000 of input VAT. In May 2014, the car was entered in the fixed assets register as a mixed use car, which allowed the company owner to deduct 50% of input VAT on the purchase. Therefore, in the VAT-7 declaration for May 2014, the entrepreneur deducted 50% * PLN 10,000 = PLN 5,000 of the input VAT charged when purchasing a car.

In August 2015, after 15 months of use, the entrepreneur decided to hand over the car for company purposes only. There are 45 months left to the end of the correction period, so the following is left to the proportional deduction of VAT:

45/60 * 10,000 = PLN 7,500.

Since the taxpayer deducted PLN 5,000 of VAT upon purchase, the amount to be deducted should be reduced proportionally:

7,500 PLN - 45/60 * 5,000 = 3,750 PLN

In the declaration for August, the entrepreneur should correct the VAT plus by PLN 3,750 of the input tax when buying the car, but not deducted.

To sum up, a change in the form of using a passenger car in the company is possible, and the formal condition must be met - reporting or updating on the VAT-26 form. In some situations, it is also required to correct the input VAT on the purchase of the car in plus or minus, depending on which direction the change was made.