A company car – changes in accounting for VAT from 01 April, 2014

From 01 April, 2014 new rules for calculating and accounting for VAT on expenses regarding automotive vehicles, with an allowable total weight not exceeding 3.5 tones shall apply. The new regulations intend to limit the right to account for VAT in the instance of automotive vehicles which are being used both for business and private purposes of a taxpayer. However, in the occasion where the cars are used exclusively for business purposes, the full accounting for VAT shall apply. In both cases, the legislator simultaneously introduced the ‘system securing‘ the correct accounting for VAT.

Limitations in accounting for VAT

In accordance with the fundamental rule the VAT payer using a car (no matter if it is a passenger car or a car equipped with a cargo partition), as a VAT taxed business it is entitled to deduct 50% of the amount of VAT resulting from the invoices documenting the expenses related to such vehicles.

We need to emphasise that the limited right of deducting VAT in the case of expenses connected with the automotive vehicles, applies only to the situation when the vehicles is used for purposes related to taxed activities, as well as for private purposes (mixed usage).

Accounting for 100% VAT

The following limitations in deducting VAT shall not apply:

1) In case the automotive vehicles are:

a) used exclusively for the taxpayer’s business activities, or

b) by design used for transporting at least 10 people including the driver, in this case such use is specified in the documents issued under the Traffic Law.

2) To goods installed in the automotive vehicles and to the related installing services, repairs, and maintenance, if the purpose of these vehicles objectively indicates the possibility that they are used solely for the taxpayer’s business activity.

In the clarification to the draft of the discussed amendment to the VAT Act, the Ministry provided examples when there is no potential possibility of using the vehicle for private purposes. These are as follows:

• the taxpayer’s business activity includes selling such vehicles – the possibility of using them for private purposes is eliminated – these cars are not registered,
• the taxpayer’s business activity includes renting the vehicles; however, the possibility of using them for private purposes will be eliminated,
• the design of the vehicle objectively indicates the sole usage for business activity purposes, for example, an excavator,
• the documentation in possession of the taxpayer (regulations, contracts and orders) indicates that the vehicle is being used solely for business activity purposes and it is not possible to for the employee to us the company car for private purpose, for example: driving home.

Obligatory register

As it was specified before, in circumstance where the taxpayer decides that the automotive vehicles are to be used solely for business activities, it has to additionally keep (for these vehicles) a mileage logbook.

The mileage logbook shall be kept from the first day the automotive vehicle is used for business activities of the taxpayer, until the day the vehicle stops being used solely for the business activities.

Taxpayers who purchased cars by the end of March 2014, are obliged to keep the logbook from when the first day they incurred the first expense related to these vehicles from 01 April, 2014.

Taxpayers who are going to deduct 50% VAT amount from expenses related to the usage of a car and those who do not have right to deduct the due tax amount by the amount of tax calculated from the related expenses, are not going to be obliged to keep the logbook.

Also, taxpayers who use the VAT taxed vehicles in their business activity and the construction of vehicles, eliminates their usage for purposes not related to the business activity or makes their usage for non-business activity purposes irrelevant, will not be obliged to keep the logbook.

Source: Gazeta Podatkowa [Tax Bulletin]