Company cars that are also used privately by staff often give rise to a lot of tax questions. How should the costs of a fleet of vehicles be treated for income tax and VAT purposes? Read on to find out all the details.
What happens when a company car is used for both work and personal use
Many companies purchase or lease vehicles to provide them to employees who need to travel frequently, such as sales staff or management staff. Questions about the tax treatment of this expenditure begin when employees also use the car on a personal basis outside working hours.
Over the years, this duality in use has led to great disparity in the criteria expressed by the Administration and the courts. For this reason, the AEAT has recently published a note clarifying the criteria applicable to this type of remuneration.
Tax treatment of company cars in 2023
Employee’s personal income tax
When a company car is used for both professional and personal purposes, it is considered as remuneration in kind and must be included in the employee’s payroll, paying personal income tax and social security contributions.
The main difficulty here is how to determine the exact monetary value of this remuneration in kind. There are different possibilities here:
- Delivery of the vehicle to the worker as his or her own property. The cost of acquiring the vehicle and the associated taxes are included as remuneration for work in kind. The only limit is that the remuneration in kind cannot exceed 30% of the annual salary.
- The worker uses the vehicle but does not own it.
- If the vehicle is owned by the company, the remuneration in kind is 20% per year of the acquisition cost of the vehicle, without taking into account depreciation.
- If leasing, the payment in kind is 20% per year of the market value of the new vehicle.
- Use of the vehicle by the employee with subsequent delivery. During the period of use, the remuneration in kind is 20% per year of the new market value. If the car is eventually delivered to the worker, the market price of the used car at the time of delivery is considered, taking into account the previous use.
Reductions for the use of energy-efficient vehicles
In the case of the best performing vehicles from an energy efficiency point of view, they have interesting reductions:
- Vehicles with CO2 emissions of less than 120 g/km and market value (before tax) not exceeding 25,000 euros: 15%.
- Hybrid vehicles with a market value (before tax) not exceeding 35,000 euros: 20%.
- Battery electric vehicles (BEV), extended range electric vehicles (E-REV) or plug-in hybrid electric vehicles (PHEV) with a minimum range of 15 km and a market value (before tax) not exceeding 40,000 euros: 30%.
Company VAT
As far as VAT is concerned, as the vehicle is a mixed-use vehicle, the company will be able to deduct 50% of the input VAT.
If the business use of the vehicle exceeds 50%, it is possible to try to deduct a higher percentage, but the tax authorities impose considerable restrictions on this possibility. The hours foreseen in the collective agreement, weekends, public holidays, holidays and working hours outside working hours on working days will be taken into account.
Tax planning for company fleet management
With increasing scrutiny from the Inland Revenue, careful consideration needs to be given to tax planning around the use of company cars to avoid penalties and disputes. At Confianz we monitor changes in current regulations to offer our clients the best tax approach.