The tax authorities are taking a closer look at company cars - what is changing?
Businesses that use company cars should prepare for more intensive checks by the tax authorities. Polish tax offices (urzędy skarbowe) are increasingly verifying whether the vehicle mileage log matches how the car is actually used. This means that the previous practice of keeping a mileage log "on paper” without properly documenting every journey may no longer be sufficient.
The greatest risk affects companies that claim the right to deduct 100% of VAT on the car, fuel, leasing instalments and running costs. Full deduction of the tax requires proof that the vehicle is used exclusively for business purposes. Any private use - even an occasional drive home - may undermine the right to a full deduction.
The tax authorities have increasingly sophisticated analytical tools at their disposal. They can compare mileage log data with other sources of information on the vehicle's movements, including GPS data, motorway toll gates and city CCTV. As a result, the risk of irregularities being detected is now much higher than it was just a few years ago.
Conditions for full VAT deduction on a company car
The right to deduct 100% of VAT on expenses related to a company car does not apply automatically. The legislator has made it conditional on meeting several strictly defined formal and factual requirements. Failing to meet them may result in the loss of the right to a full deduction and, consequently, the need to correct tax returns.
To lawfully deduct 100% of VAT, a business owner must meet all of the following conditions:
- Filing a VAT-26 form - notifying the tax office that the vehicle is used exclusively for business activity, by the 25th day of the month following the month in which the first expense was incurred.
- Keeping a detailed vehicle mileage log - the log must state the date of the journey, its purpose, the route (from-to), the number of kilometres driven, the details of the driver and the vehicle's registration number.
- Adopting vehicle use regulations - an internal document should clearly rule out the use of the car for private purposes by the business owner, employees and any other persons.
- Actually using the vehicle exclusively for business purposes - having the documentation alone is not enough if the car is in reality also used for private journeys.
The absence of any of these elements may give the tax authority grounds to challenge your VAT returns. It is worth remembering that in practice the burden of proof lies with the business owner, who must demonstrate that the conditions for full deduction have been met.
Consequences of incorrect VAT treatment - what are the risks for the business owner?
The consequences of irregularities in VAT accounting for company cars can be serious, both financially and legally. Correcting the tax return and repaying part of the deducted tax is only the beginning of the potential problems.
Financial consequences
If the right to a full VAT deduction is challenged, the business owner will be required to repay the excess deducted tax together with late payment interest. In practice, the amounts in dispute can range from several thousand to tens of thousands of zloty, and for companies with a larger fleet of vehicles, considerably more. Interest accrues from the day on which the tax should have been correctly accounted for, which in audits covering several years back can become a significant burden.
Fiscal criminal liability
The tax authorities may also examine whether the irregularities found constitute a fiscal offence or misdemeanour within the meaning of the Fiscal Penal Code (Kodeks karny skarbowy). Careless keeping of the mileage log, filing false returns or deliberately inflating deduction amounts may result in a fine and, in extreme cases, even criminal liability. It is therefore essential that tax documentation is kept diligently and reflects the true state of affairs.
Mixed use as a safer alternative
Not every business owner has to opt for a full VAT deduction. The regulations provide an alternative solution in the form of so-called mixed use, which allows a 50% VAT deduction on expenses related to a company car. This option is significantly less risky from the perspective of a potential tax audit.
Under mixed use, the business owner does not have to keep a detailed mileage log or file a VAT-26 form. The car can be used for both business and private purposes without the need to document every journey. In return for this simplification, the business owner gives up half of the deduction available.
For many businesses - especially sole proprietorships (JDG) and small companies - mixed use is the optimal solution. The smaller tax benefit is offset by the absence of audit risk and potential penalties. However, each case should be analysed individually, taking into account the amount spent on the vehicle, how it is actually used and the willingness to maintain the required documentation.
How to protect yourself against an audit - practical tips
The increased activity of the tax authorities in auditing VAT on company cars requires business owners to take a proactive approach to documentation. Here are the key steps that can protect your company from the negative consequences of an audit:
- Audit your existing documentation - it is worth checking whether the mileage log is kept correctly and reflects the actual use of the car.
- Update your vehicle use regulations - the document should reflect current legislation and the actual rules for using cars in the company.
- Introduce a GPS system - electronic route monitoring can provide additional evidence confirming exclusively business use of the vehicle.
- Consult a tax adviser or lawyer - a professional review of your accounting helps identify potential risks and implement corrective action before an audit begins.
- Consider switching to mixed use - if the vehicle is not used 100% for business, it is safer to deduct 50% of VAT than to risk penalties.
Prevention is always cheaper than reacting to the results of an audit. Business owners who ensure their accounting is correct now will avoid the stress and costs of any tax proceedings.
Do you need legal help with VAT accounting?
Tax issues related to company cars can be complicated, and the consequences of errors can be costly. If you are not sure whether your VAT accounting is correct, or if you have already received a summons from the tax office - do not wait for the problem to get worse.
Our firm offers comprehensive support in tax law, including an audit of VAT on company vehicles, help in preparing documentation and representation before the tax authorities. Contact us to arrange a consultation and protect your company's interests. We act quickly, discreetly and effectively, because in tax matters every day counts.
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