Company Car for Private Use: Taxation, Social Security Contributions, VAT and Legal Documentation
We helped the client comprehensively structure the provision of company cars to employees for private use – from processing the benefit in kind and assessing VAT and related expenses to preparing the necessary employment law documentation.
Allowing employees to use a company car for private purposes is a common employee benefit. Its introduction, however, affects several areas of a company’s operations, including payroll, income tax, social security and health insurance contributions, VAT, accounting and employment law.
In this particular case, the client approached us to set up the entire process so that the benefit would be correctly processed through payroll, comply with the applicable tax rules and clearly define the rights and obligations of both the employer and the employee.
What did the client need to address?
The client planned to allow employees to use company vehicles outside business travel. It therefore needed to determine how the benefit would affect payroll and insurance contributions, as well as the company’s tax and accounting obligations.
Areas assessed
- taxation of the employee’s benefit in kind
- inclusion of the benefit in payroll and insurance contributions
- fuel costs relating to private journeys
- the scope and maintenance of mileage records
- the tax deductibility of expenses
- VAT deduction relating to the company car
- employment law documentation and employee liability
How did we help the client?
Payroll and insurance contribution setup
We assessed the private use of the company car as an employee benefit in kind and arranged for it to be correctly included in regular payroll processing.
Calculation of the benefit in kind
In this particular case, we set up the monthly taxation of the benefit at 1% of the vehicle’s entry price and reflected it in the calculation of income tax and insurance contributions.
VAT and tax-deductible expenses
We assessed the application of VAT and the tax deductibility of expenses relating to the vehicle’s business and private use.
Fuel and mileage records
We established rules for recording business and private journeys, covering fuel costs and documenting the related expenses.
How was the benefit reflected in payroll?
When an employer provides an employee with a motor vehicle for both business and private use, the employee receives a taxable benefit in kind from employment.
In this case, we explained the method used to calculate the benefit and arranged for it to be regularly included in the employee’s payroll. The monthly benefit in kind, amounting to 1% of the vehicle’s entry price, was therefore correctly reflected in the calculation of income tax and the applicable social security and health insurance contributions.
The solution also included setting up the supporting documentation and internal process required to ensure that the payroll department receives timely information about the provision of a vehicle, any subsequent change of vehicle or the termination of its private use.
How did we address VAT, fuel and tax-deductible expenses?
Processing the benefit in kind through payroll was only one part of the solution. We separately assessed the tax and accounting implications of using the company car for private purposes.
Together with the client, we established:
- the method for covering fuel costs relating to private journeys
- the required scope of mileage records
- the treatment of expenses connected with operating the vehicle
- the procedure for claiming VAT deductions
- the accounting treatment of the vehicle’s private use
- the transfer of supporting documents between the responsible departments
The setup took into account the specific vehicle, the method by which it was acquired and the expected extent of its business and private use.
How did we define the employee’s rights and obligations?
In cooperation with our lawyers, we prepared an Agreement on the Provision of a Motor Vehicle for Private Use. The document sets out the conditions governing the use of the vehicle and allocates responsibilities between the employer and the employee.
The agreement covers:
- the permitted scope of business and private use
- the persons authorised to drive the vehicle
- rules for using the vehicle abroad
- payment of fuel and other private-use expenses
- liability for fines, damage and insured events
- obligations relating to servicing and maintenance
- conditions governing the handover and return of the vehicle
What was the outcome?
The client received a comprehensive process integrating the payroll, tax, accounting and employment law obligations associated with the private use of a company car.
- correct taxation of the benefit in kind
- regular inclusion of the benefit in payroll
- assessment of the insurance contribution, tax and accounting implications
- rules established for fuel costs and mileage records
- an agreement prepared between the employer and the employee
- a consistent procedure that can also be applied to other company vehicles
Does your company allow employees to use company cars for private purposes?
We can help you correctly address the related payroll, tax, accounting and legal obligations, including the necessary documentation. If you have any questions, please contact us using the form below.