As this is a detailed memo, we advise you to here available to download in PDF format.
VAT on the purchase and running costs of a car that forms part of a business’s VAT-registered assets is deductible (the “input VAT”).
In addition, the general conditions for VAT deduction must be met; a description of these conditions is beyond the scope of this factsheet.
Change
To the extent that the car is used for private purposes, the input VAT deduction must be reversed by paying VAT on the notional service relating to private use.
We set out below how the VAT payable is to be calculated (the general rule). In practice, however, the approval (the “2.7%/1.5% scheme”) is applied in most cases.
Tax base
The taxable amount on which VAT relating to the notional service is payable is:
- 1/5e of the car’s purchase price (from the year following the 4the one year after the year in which the business owner started using the car, this component is set to zero), plus;
- all costs relating to the maintenance, repair, improvement and use of the car;
insofar as the input VAT on these costs has been deducted.
Levy
The following factor is applied to the result of this tax base:
(private mileage + commuting mileage[1])
total kilometres
And VAT at the rate of 21% must be paid on the resulting amount.
Commuting distance
This refers to all kilometres travelled between the place of residence or stay and an agreed fixed place of work. If no fixed place of work has been agreed, this refers to the business address of the self-employed person.
For example, journeys made by construction workers to the building site and by maintenance engineers to a customer’s address are generally not considered to be commuting.
If the private use of a car consists solely of commuting between home and work, there is no need to keep a mileage log. In that case, it is sufficient to record how often these journeys take place or to assume a fixed number of 214 working days per calendar year (pro rata for part-time workers and if the employment contract ends during the course of the year).
Approval
Because it is difficult to provide sufficient proof of the kilometres travelled[2], the State Secretary for Finance has approved that the VAT payable in respect of the deemed supply be set at:
2.7% * the car’s list price (including VAT and BPM).
Naturally, on a pro rata basis where the car is used partly for purposes for which there is no entitlement to a VAT deduction.
If VAT was not deducted when the car was purchased (which almost always applies to the purchase of a so-called “margin car”), the following may be used instead of 2.7%: 1,5%.
1.5% may also be used from the year following the 4the the year following the year in which the business owner started using the car.
No distinction
The scheme applies to both cars driven by business owners (sole traders, partners in a general partnership or professional partnership, freelancers, self-employed persons without employees) and by employees (including directors who are also shareholders). Nor is any distinction made between passenger cars and vans. Finally, the scheme makes no distinction as to the extent to which the car must be included in the calculation for the purposes of payroll tax or income tax.
Latest time-based declaration
The VAT payable in respect of the private use of a company car must be included in the most recent periodic return, i.e. the return due to be submitted in January.
Personal contribution
Many employees pay their employer a personal contribution for the private use of a company car. VAT must be paid on this personal contribution (the VAT payable is 21/121 * the personal contribution). This payment must be included in every periodic tax return in which the personal contribution is paid (this is usually done via the payslip).
Insofar as VAT has been paid on the personal contribution, no VAT is, of course, payable on the notional service relating to private use.
However, if the personal contribution is lower than the normal value of the private use of the car, VAT must be paid on the normal value. As it is difficult in practice to determine the normal value, it has been agreed that VAT is payable on:
2.7%/1.5% * the car’s list price (including VAT and BPM).
Naturally, on a pro rata basis where the car is used partly for purposes for which there is no entitlement to a VAT deduction.
VAT on the (standard) personal contribution must be paid in each tax return period. The payment pursuant to the approval must be made in the final return for that calendar year. If the VAT on the personal contribution exceeds the aforementioned flat-rate amount, the flat-rate amount must NOT be applied.
Objection
A number of cases are currently pending before the tax court concerning the method of VAT payment in relation to the private use of cars, as described above, which came into force on 1 July 2011. Pending the outcome of these proceedings, it is advisable to lodge a (pro forma) objection to the payment of VAT on the private use of cars in order to preserve one’s rights.
For the 2011 tax return, the Tax and Customs Administration has approved the submission of a pro forma objection by tax advisers on behalf of all their clients via a single (mass) objection. For the years after 2011, the Tax and Customs Administration has approved that, for clients included in such a collective objection, it is not necessary to lodge a further (pro forma) objection for these years. Please note this if you change your adviser.
A factsheet is intended to outline the broad principles of a scheme. To ensure readability, matters have therefore been presented in simplified terms. VWGNijhof accountants and tax advisers is therefore not liable for the consequences of any actions taken or not taken as a result of this factsheet.
[1] For VAT purposes (and unlike payroll tax and income tax), commuting is always classified as private use.
[2] The State Secretary for Finance takes the view – which may be open to debate – that this requires a comprehensive mileage log.