Many companies and sole traders decide to purchase cars and which will serve the needs of the company. In the following lines we will give you a little more information about the accounting part of purchase including how the cost of buying and using the company car should be recorded in order to be recognized for tax purposes.
Purchase of a company car
For tax purposes, proper accounting coverage of the acquisition of the car is important. Accounting coverage of a company car requires following the Accounting Act and the applicable accounting standards.
When buying and operating a company car (which does not constitute a car within the meaning of paragraph 1, item 18 of the VAT Act) you can take advantage of the right to deduct tax credit as stipulated by Art. 69, para. 1, item 1 of the VATA. In this case, the vehicle shall have the following characteristics:
• be intended for the transportation of goods;
• have permanently built-in technical equipment for the purposes of the main activity carried out.
The purchase and cost of operating a car are subject to tax credit only in cases where:
•the car is used solely for business purposes (mainly for transport and security services, taxi transport, rental, courier services or preparation of drivers of motor vehicles);
•The car is intended for resale.
Proving the use of the car as part of the company’s activities
In order to be recognised for tax purposes, the accounting expense related to the operation of a company car requires documents proving that the mileage of the vehicle is entirely related to the company’s activities. Here are some of them:
• Document proving the purchase of fuel, consumables or maintenance services of the vehicle is the invoice;
• There is no requirement regarding the type and name of the document proving the mileage (most often the waybill);
• In order to prove the use of the company car for company purposes, the waybill should show the kilometres travelled and the route travelled.
For the actual fuel consumption you must take into account the different operating conditions. With the type of route, the weather conditions. For the determination of the expenditure Regulation 3 is used for the normalisation of fuel consumption and lubricants.
If a company car is used for both personal and business purposes
The costs related to the personal use of the car are treated as costs in kind and are taxed on expenses (Art. 204, para 1, item 4 of CITL (corporate and income tax law). In this case, there are three ways of determining the basis for the tax on expenditure in nature:
• by multiplying the total cost of all vehicle-related costs by the ratio between the kilometres travelled for personal use and the total kilometres travelled by the vehicle concerned;
In this case, all costs of operating a company car must be documented with an invoice for fuel and an internal document for the enterprise. This can be a travel sheet, a travel booklet, a GPS system printout, a report, etc. Through which it can raise the amount of costs for official and personal use, taking into account the kilometers travelled.
• by multiplying the total cost of all vehicle-related costs by the ratio between the hours of personal use of the vehicle and the total hours of use of the vehicle;
In this case, an invoice for the acquisition of fuel and an internal document for the enterprise are also required. Through which it can wake up the hours for official and personal use.
• by multiplying the total cost of all vehicle-related costs by 50 per cent.
According to the provision under Article 10, para 6 of CITL. The costs related to the operation of vehicles, which are used for both the company’s activities and for personal purposes, are recognized for tax purposes and where no travel document or other similar document has been issued, when determining the taxable amount for tax on the costs under. Article 201, para 1, item 4, the provision under Art. 215a, para. 2, item 2 of CITL.
The costs of operating a company car may not be documented with an internal document for the enterprise to establish the kilometres and hours travelled, the amount of the costs of official and personal use.
Costs for a company car included in the tax base for the cost tax
When determining the taxable amount for the tax on expenditure in nature pursuant to the provisions of Art. 215a, para. 1 and para. 2 of CITL. Тhe total amount of expenditure shall include all accounting expenses related to a company car. For example – operating expenses, insurance costs, local tax, vignette fees, rent (in the case of a rented car), parking, accessories recorded as VAT expense. Also the salary of the driver (if any), including and his social security at the expense of the employer.
As the vehicle is a tax depreciable asset, it should be taken into account that according to basis § 1, item 83 of the DD of CITL. In the taxable amount for determining the tax on the costs under. Art. 204, para. 1, item 4 of the same law should include tax (not accounting) of the same.Each company may choose which of the three methods to use when calculating the taxable amount for determining the tax on expenditure in nature.
These are just some of the particularities when accounting a company car. To learn more and get accounting consultations from professionals with experience get in touch with T&G Consulting.