PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES

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Joy Sharp
6 years ago
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1 Zaventem, 23 January 2013 A new year means a new regulation. After considerable discussion and periods of consultation with the professional associations, the die is finally cast. In its Addendum dated 11 December 2012 (VAT Decision E.T /3), the VAT administration has published the long-awaited information concerning the VAT deduction ceiling to be applied to company cars (practical application of Article 45 1quinquies VAT Code). WHAT HAS CHANGED? Under the previous regulation, the Inland Revenue accepted a recovery of 50% of the VAT, on condition that the VAT is deducted from the benefit in kind (BIK) charged. In the new VAT deduction ceiling - which entered into force on 1 January the link with the BIK in the income tax declaration is definitively ended and the business use of vehicles must be taken into consideration. What this means, in practice: The VAT deduction was previously dependent on the actual business use of a company car. The maximum VAT deduction for passenger cars is 50% The maximum VAT deduction for Light Commercial Vehicles is 100% The VAT deduction from BIK is abolished The rule applies to purchased vehicles as well as lease or rental cars In order to calculate the proportion of actual business use, the VAT administration allows a choice of one of three methods: In the first method, a manual (e.g. by means of a logbook, software programme) or an automated (e.g. a GPS system adapted for the purpose) logging of journeys must be used. The calculation of journeys is to be made for each vehicle. The second method involves using a formula. In this approach, private use of the vehicle is calculated on the basis of 200 days travel between home and work and 6,000 additional flatrate kilometres. This calculation is also to be made for each vehicle. For the first and second methods, the administration allows for an optional application of an overall average deduction percentage for all vehicles of the same type. The third method applies only if there are at least 4 vehicles in the fleet, and presumes a 35% flat-rate business use of the vehicle. In determining the VAT deduction, a distinction must further be made between cars that are made available free of charge and cars for which the employee pays a personal contribution.

2 COMPANY VEHICLES WITHOUT EMPLOYEE CONTRIBUTION METHOD 1: Keeping track of actual kilometres for business use by means of a journey log The taxpayer must, by means either of a manual (e.g. by means of a logbook, software programme) or an automated (e.g. a GPS system adapted for the purpose) method maintain a full log of journeys. For each business use of the vehicle the following information must be noted: Date of journey Starting address Destination address Kilometres driven per journey Total kilometres driven per day The number of kilometres driven must be recorded at the beginning and at the end of the relevant period (in principle per calendar year). The taxpayer must keep this log per vehicle. The kilometres driven between home and the (regular) workplace are not considered business use but as private kilometres. The maximum limit for the VAT deduction of 50% for personal cars and 100% for vans. An employee drives a car with a monthly lease of 600 and a Benefit in Kind (BIK) of 200 per month. Calculating business use: The journey log shows that the employee has driven 10,000 kilometres for business use in one year, out of a total of 17,000 kilometres. The proportion of kilometres for business use out of the total number of kilometres is calculated as follows: business use = 10,000 km / 17,400 km = 57.47%. As a consequence, 50% of the VAT paid is deductible (the legal maximum). Impact The VAT deduction remains unchanged (50%), since the business use has been calculated as 57.47%. The 8.55% VAT (a special rate) levied on the Benefit in Kind is eliminated in the new regulation. In this example, this comes to a benefit of ( ( 200/1.0855)). Total impact: =

3 METHOD 2: Flat-rate calculation of private kilometres based on actual use This somewhat time-consuming method for calculating the private use of a vehicle takes into account the total number of kilometres driven on an annual basis and a flat-rate estimate of private use, bearing in mind the actual distance between home and the workplace. The formula for calculating the private use is as follows: Distance between home and the workplace x 2 x ,000 % Private use = x 100 Total distance % Business use = 100% - % Private use Just as with the first method, this calculation must also be made per vehicle and the maximum deduction is 50% for personal vehicles and 100% for vans. Where the use of the vehicle changes in the course of the year (e.g. if the car began to be used at some point during the year or if the driver moves), then the parameters of 200 (=number of working days) and 6,000 km (= flat-rate private kilometres) are pro-rated. The estimate of 200 working days with travel between home and the workplace is a flat-rate approach to which the VAT administration does not permit any changes to be made. The flat-rate takes into account a number of holidays and sick days, distance working, occasional business trips, etc. As with the first method, this calculation must also be made per vehicle. An employee drives a car with a monthly lease of 600 and a Benefits in Kind (BIK) of 200 per month. Calculating business use: The employee lives 29 km from the workplace and travels 17,400 km annually. 16 x 2 x ,000 12,400 % Private use = x 100 = x 100 = 71% 17,400 17,400 % Business use = 100% - 71% = 29% As a result, the VAT deduction paid is limited to 29% Impact The business use of the vehicle is calculated at 29%, as a result of which the VAT deduction is also limited to 29%. This means an additional cost of for the employee ( 600 x 21% x (50% - 29%)). The 8.55% VAT (a special rate) levied on the Benefit in Kind is eliminated in the new regulation. In this example, this comes to a benefit of ( ( 200/1.0855)) Total impact: = euros

4 METHOD 3: General flat-rate business use of 35% The third method is intended exclusively for companies with a minimum fleet size of four cars and/or vans. Based on the general flat-rate business use, one can specify 35% of the total number of kilometres driven as business use. This is advantageous particularly for companies that offer company cars more as a part of the salary package than purely for business use, given that in this case the private use is much higher. The conditions for this third method are that they may not be combined with one of the aforementioned methods, and must be applied for a period of at least four years. An employee drives a car with a monthly lease of 600 and a Benefit in Kind (BIK) of 200 per month. Calculating business use: Flat-rate deduction of 35% Impact= The VAT deduction is limited to 35%. A disadvantage of as compared to the previous situation. 600 x 21% x (50% - 35%) = The 8.55% VAT (a special rate) levied on the Benefit in Kind is eliminated in the new regulation. In this example, this comes to a benefit of euros ( 200/ = Total impact: = 3.15 FYI ONE: The first and second methods can be combined without any problem. If the organisation has a fleet consisting of similar types of vehicles (e.g. all private cars), then the Inland Revenue allows an average overall deduction rate. In determining this, the individually calculated deduction percentages are added up and divided by the number of vehicles. Type of vehicle Method % Business % Deduction Private car A % 38.70% Private car B % 50.00% Private car C % 50.00% Private car D % 25.25% Average % deduction 40.99%

5 COMPANY VEHICLES WITH EMPLOYEE CONTRIBUTION The situation is different if the employee pays a contribution for the use of the car. If the employee is asked to pay a contribution, the rules regarding rental are applied. In the latter case, there is a general maximum deduction of 50%, regardless of the business use. The employer must in that case deduct the full VAT (21%) from the catalogue price (CP) of the vehicle. CP = (lease price + costs) x (50% - %Business use) An employee drives a car with a monthly lease of 600 and a Benefit in Kind (BIK) of 200 per month. In addition, the employee pays the employer a contribution for the private use of the car. The contribution comes to 100 per month. The business percentage amounts to 40%. Impact: The annual cost for the car is 600 x 12 = 7, The VAT on this amount is 21% x 7,200 = 1, The VAT deduction is 50% x 1,512 = The catalogue price (CP) is ( 7,200) x (50% - 40%) = 7,200 The VAT on the catalogue price is 720 x 21% = The total cost for the employer is (50% non-recoverable VAT: VAT on the catalogue price: ) If in the old situation 50% of the VAT could also be deducted, the impact for the client in this example is

LIGHT COMMERCIAL VEHICLES The system is such that the VAT deduction is not limited to a maximum of 50% for vans; rather, if these vehicles are also used for private purposes then, according to the

6 LIGHT COMMERCIAL VEHICLES The system is such that the VAT deduction is not limited to a maximum of 50% for vans; rather, if these vehicles are also used for private purposes then, according to the rules on this issue, the VAT must also be limited to the business use. Note: if clients with a combined fleet opt for the third method, this means that the VAT deduction on vans will also be limited to 35%. A van is used 75% for business use and 25% for private use. As from 1 January 2013, the VAT deduction on such a van is limited to 75%. TRANSITIOINAL MEASURES FOR 2012 The new rules governing deduction enter fully into force as from 1 January For 2012 (just as for 2011), the VAT administration will exercise tolerance, meaning that the old pre-2011 rules may be applied, namely, a 50% VAT deduction and deduction of VAT on the benefit in kind. There is nonetheless the option of applying the new rules for 2012 as well, provided that this is the practical consequence of a law that is in force as from 1 January MOVEABLE ASSETS OTHER THAN VEHICLES The VAT deduction on mobile phones, laptops, tablets, etc. that are used for both business and private purposes is likewise limited to the business portion. For all movable assets other than vehicles, the VAT administration also accepts, in lieu of proof, a flat-rate of 75% for business use. TAX DEDUCTION The tax regulation for the non-deductible VAT is unchanged: Paid interests, including non-deductible VAT, remains 100% deductible Fuel, including non-deductible VAT, remains 75% deductible Other costs (write-downs, vehicle registration tax, road tax, repair, maintenance and tires, insurance, replacement car and road assistance) remain deductible based on the C02 emissions of the vehicle

FBT Return Action Checklist. March % 47% 49% 47%

FBT Return Action Checklist. March % 47% 49% 47% FBT Return Action Checklist March 2017 Spry Roughley Rate of tax Are you aware of the FBT rate changes for the following FBT years? The rates are as follows: FBT year Ending 31 March 2014 (and prior years)