A company car? – wise or not?
Let’s get to the point straight away. A company car isn’t as profitable as you might think. You have to keep track of all your rides or you have to deal with additional tax liability, which would mean you have to make more expenses then the additional tax liability to even have an advantage. But we’ll get back to that later. You also have to determine whether or not your car is a company car for both income tax and VAT.
When 90% of the kilometres you drive are for busines, then you’ll have declare your car as a company car for income tax. Do your business rides only make up for 10% or less of your rides, then you’re not allowed to declare it as a company car. For everything in between, you’re given a choice. Almost all entrepreneur car owners are in this category. Your choice is binding and you can decide only once; when you start your company or when you buy the car. It’s important to weigh your options before you decide.
1. Your car is not a company car
Less then 10% of your kilometres are business or less than 90% of your kilometres are busines, but you choose not to declare your car as a company car. In this case you can add €0,21 for each business kilometre to your costs. A popular choice for a lot entrepreneurs. You don’t have to take added tax liability into account and there’s a tax benefit of € 0,21 for each business kilometre. The only thing you have to keep track of are the business kilometres you drive.
2. You declare your car as a company car and you drive less than 500 kilometres for private use.
By declaring the car as a company car you will have a tax benefit, because you can declare all your car costs as business costs and you don’t have to take added tax liability into account. You do however have to record some extra data. The Belastingdienst will not just take your word for it. You’ll have to have bulletproof records about the rides you make in your company jalopy. Here’s a short summary of the minimum you need to register in your Excel file for each ride:
- Start and end figure odometer
- Departure and arrival address
- The route you took if it’s not the most common one
- Private use or business use
- The kilometres for private use when the ride combined private and business use
3. You declare your car as a company car and you drive more than 500 kilometres for private use
When you choose this option you’ll have to deal with added tax liability. That doesn’t sound too good and compared to the options mentioned above, it isn’t. But it’s rather fair, plus you don’t have to deal with endless records of all the driven kilometres. The Belastingdienst sort of puts it this way: “You want to declare your car as a company car, but you’re also driving it for private use. So it’s not quite fair to declare all coststs as business costs. Because we can’t check what costs of the car are caused by business or by private use, everyone (in this category) gets an added tax liability!”
This added tax liability simply means that a certain figure is determined. When your car costs are higher than this figure you can deduct the costs that are higher than the added tax liability from your taxable income.
Added tax liability
For cars up to 15 years of age the standard added tax liability applies. This is 22% for almost all cars. For fully electric cars the added tax liability is 4%. This percentage is calculated using the list value. This is the new price of the car including VAT. The lower added tax liability for electric cars can only be applied to cars under €50.000. For more expensive electric cars the standard percentage of 22% will be applied.
For cars older than 15 years, so called youngtimers, rules are slightly different. First of all the added tax liability isn’t calculated using the list price, but the current value of the car. The added tax liability is 35% for regular cars and 17% for electric cars. Right now there are no electric cars older than 15 years, but of course that day will come if you wait long enough.
For VAT you’ll have to decide as well whether or not to declare your car as a company car. There are roughly three options: all business use, partially business with records and partially business without records.
1. All business
The company has to be declared as a company car when you drive less than 500 kilometres for private use. In this case you can get a tax return for paid VAT for all car expenses. Unlike income tax, VAT considers all kilometres from home to work as private kilometres
2. Partially business with records
When you thoroughly record the kilometres you drive for both business and private use and you can back it up with proof of your mileage at the beginning and the end of the year, then you are allowed to request a tax return for the VAT of your car expenses by the same ratio of the business kilometres and the total of kilometres you’ve driven.
3. Partially business without records
If you’re not into keeping records of your business and private kilometres, you can choose to apply the added tax liability. If you paid VAT when you bought the car, then your added tax liability is 2,7% of the list value. If you didn’t pay VAT when you bought the car (a so called margin car), for instance because you bought a second hand car through www.marktplaats.nl then the added tax liability is 1,5%.
Determining whether or not to declare your car as a company car
There are a couple of important questions you should ask yourself before deciding to declare your car as a company car.
- How many kilometres will you drive for business use and for private use?
- What kind of car are you driving? Model year? Fuel or electric?
- What’s the list value of your car?
- Do you expect to have a lot of car expenses on a yearly basis?
- Do you want to keep a record of all the rides you make?
With this information you can roughly decide what situation suits you best for both the income tax and VAT. It simply comes down to the fact that a company car is only profitable when you either drive less than 500 kilometres in private use or: when your added tax liability is lower than the car expenses you have. Besides that it’s important to check if it isn’t more profitable to just declare the €0,19 for each business kilometre you drive. It might save you a lot of time and headaches.