January 24, 2024
Tips for reducing the tax on your business car
Many people have a car that they use for both personal and work purposes. Often, they choose to register the car as a business vehicle and then use it for personal reasons. You may have to pay tax on the private use of the car, which can be a burden. In this article, we will provide you with tips on how to reduce this. We will also explain when and how much tax you have to pay if you use a business car for personal use.
When do you have to pay tax?
You have to pay tax on your personal use of a business car if you drive more than 500 kilometers privately in one year. To avoid paying tax, you must drive less than 500 kilometers privately and you must be able to prove how many private kilometers you have driven. It is useful to keep a mileage log for this, and there are many apps available to help you do this. It is important that your mileage log is complete and includes all private kilometers. The tax authorities regularly conduct checks and impose hefty fines on individuals who have not recorded their private kilometers.
You must also be careful to ensure that you do not exceed the 500-kilometer limit. It would be a shame if you exceeded this limit in December and had to pay tax anyway.
How much tax do you have to pay for a 'normal' business car?
If you exceed the 500-kilometer limit, you will pay an annual gross tax of 22% on the car's list price for a 'normal' car. The list price is the official new price of a car. You must then multiply this amount by the tax bracket in which your highest income from work and home falls. This gives you the net tax you must pay. The net tax amount depends on your income.
For example, suppose you buy a car for your business that you drive more than 500 kilometers privately in a year. The car has a list price of €20,000. You will then pay a gross tax of 22% * €20,000 = €4,400. Suppose in 2024 your income for income tax falls into tax bracket 1, 36.97%. You will then pay a net tax of 36.97% * €4,400 = €1,626.68.
Tips for reducing tax
- Drive a fully electric car. For cars that do not emit CO2, you pay a tax of 16% instead of 22%. However, there is a maximum benefit for electric cars. For the amount of the list price above €30,000, you still pay 22% tax. For cars that run entirely on hydrogen or solar energy, you pay a tax of 16% on the entire list price. There is no maximum benefit for cars that run on hydrogen or solar energy.
- Drive a youngtimer. If you drive a car that is more than 15 years old (a youngtimer), you will pay 35% tax on the car's current value. The current value of a car, especially a youngtimer, is often much lower than the list price of the car. Therefore, despite the higher tax rate (35% instead of 22%), you often pay less tax with a youngtimer compared to other cars.
- Keep the list price low. You pay tax on the list price of a car (except for youngtimers). It is useful to order a bare-bones car with few extras. Later, when the car is registered in your name, you can buy extra features, such as heated seats. This keeps the list price low, and you pay less tax as a result.
- Putting your business car on private use and then using it for business purposes can sometimes be more advantageous than using your business car for private use. When you use your private car for business purposes, you may be entitled to an untaxed mileage allowance and can reclaim a portion of the VAT. Read an article here about how it works when you use your private car for business purposes.
- Buying or leasing a private car alongside your business car can sometimes be more cost-effective if the tax you pay for the benefit of your business car is very high. (When people do this, they often choose to lease privately because they don't have to pay a large amount all at once.) You can then use your business car entirely for business purposes and your private car for private mileage. You won't have to pay any tax in this case. In some cases, this method can be cheaper.
Therefore, you pay tax if you drive more than 500 private kilometers with a business car. The amount of tax you pay depends on the catalog value of your car and the tax bracket of your income in box 1. Hopefully, you can use our tips and reduce the tax you have to pay!
