The tax challenge regarding mixed use of company vehicles
Currently, there are a number of tax issues when using a company car for private use and different approaches to personal income tax and VAT that companies need to consider.
When a company car is used both for work purposes and for personal use outside working hours, it is considered as remuneration in kind and is included in the employee’s salary, which is subject to personal income tax and social security contributions.
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.
It is common for many companies to purchase vehicles to provide them to their employees, as is the case for sales staff or any employee who needs to travel frequently. However, the management of these vehicles, in particular their tax treatment, poses many uncertainties and challenges for the company, as employees, in addition to using the car for work purposes, also use it on a personal level outside working hours.
Currently, taxation in relation to the mixed use of company cars has raised questions about the appropriate taxation and legal aspects involved in such situations. This duality of use has led tax authorities to seek an equitable way of taxing the benefit that employees derive from enjoying these vehicles for private purposes.
There are 4 key legal aspects to the use of company cars
- Valuation of remuneration in kind: A key question is how to determine the monetary value of the benefit in kind derived from the personal use of a company car. Accurate valuation of this benefit is crucial in order to calculate the appropriate taxes that employees should pay for the personal use of the car.
- Documentation and registration: As is the general rule in the field of taxation, the burden of proof lies with the person exercising his right. In this case, the company and the employee are responsible for proving the professional use of the vehicle to the tax authorities. To this end, it is essential that companies keep exhaustive records of the kilometres travelled and the purpose of each trip made with the vehicle. This will enable a proper review to be carried out and the proportion of personal and business use of the car to be determined.
- Tax regulations and jurisprudence: In view of the uncertainty generated by the different criteria expressed by the Administration and the courts, the AEAT has recently published a note clarifying the criteria applicable to this type of remuneration.
- Tax planning: In the face of increasing scrutiny from tax authorities, companies should carefully consider tax planning around the use of company cars. Implementing clear policies and compliance measures can help avoid penalties and disputes.
Tax treatment of company cars for personal income tax and VAT purposes
- Vehicles with CO2 emissions of less than 120 g/km and market value (before tax) not exceeding 25,000 euros: 15%.
- Hybrid vehicles or vehicles powered by internal combustion engines, provided that the market value (before tax) does not exceed 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, provided that the market value (before tax) does not exceed 40,000 euros: 30%.
As far as VAT is concerned, since the vehicle is a mixed-use vehicle, the Law establishes a presumption whereby a company may deduct 50% of the input VAT. In the event that the use of the vehicle is more than 50%, it will be possible to try to deduct more than this amount, but the Treasury imposes considerable restrictions on this possibility, as it considers that the criterion of availability for private purposes must be used, both in the case of VAT and personal income tax. This criterion has been specified by the Audiencia Nacional as the total annual time that does not correspond to the employees’ working day, so that the hours provided for in the collective agreement and the time available to the employees, specified as follows, will be taken into account:
- Weekends.
- National Holidays.
- Holidays.
- Hours outside working hours.
- Working days.
If you have any doubts about this subject, please do not hesitate to contact us, by telephone to Carles Monfort Codina or by e-mail to cmc@btsasociados.com, we will be delighted to help you