Important information for business drivers
Having a company car may sound like something just for large firms, but even as a small business owner, freelancer or self-employed professional, driving for business can be a smart move. It often brings tax advantages, gives you a clear overview of your costs and is just practical. But there’s more to it than simply signing a lease or buying a van. You’ll also need a business car insurance and you should carefully check what is most fiscally beneficial. Below you’ll read what you really need to know if you’re considering a company car. In plain language, with no fuss.
Investment allowance
Suppose you buy a company vehicle, such as a van for your trade business. Then you might be eligible for investment allowance. You may then deduct part of the purchase price from your profits, which reduces your taxes. In most cases this is the small-scale investment allowance (KIA). This usually doesn’t apply to passenger cars, unless you use the car for taxi or courier services. So, are you planning to take out a van insurance? There’s a good chance you’ll benefit from additional tax advantages as well.
Depreciation allowed
If you buy the car or opt for financial lease, the vehicle is recorded on your company balance sheet. You are then allowed to depreciate the car over five years. This means you can report part of the value each year as costs. And costs reduce your profit, so also your tax. This only applies if the car is actually registered as a company asset. Do you occasionally use your private car for work? That doesn’t count. The advantage of business driving is that you can fully deduct costs for insurance, fuel and maintenance as business expenses.
Watch out for additional tax if you also use it privately
Do you also use the company car privately? And do you drive more than 500 kilometres per year for private purposes? Then you’ll have to deal with an additional taxable benefit. This is treated as extra income, which is taxed accordingly. Whether you just exceed that limit or drive thousands of kilometres: as soon as you go over 500, it applies. The amount of additional tax you pay depends on the list price and the car’s CO₂ emissions. Hardly ever use the car privately? Then you can avoid this extra tax, but you’ll have to prove it with a thorough logbook or an official tax authority statement. Yes, this is checked carefully. No guesswork or rough estimates allowed.
Financial lease? Then you may deduct interest
If you choose a financial lease, you’re basically borrowing money to buy a car. Each month you pay an amount that covers repayment and interest. That interest can be deducted from your profits. For example, if you pay €1,250 interest per year and are in the first tax bracket (36.93%), you’ll save about €460 after tax. Not bad at all.
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