September 5, 2022
Using your personal car for business: What costs can you deduct?
Many entrepreneurs have a personal car that they also use for business purposes. Perhaps this is also your situation. All the rules regarding cars and entrepreneurship are always a bit complicated. In this article, we will explain how the VAT rules work for using your personal car for business purposes.
Are car expenses deductible from your profit?
First of all, it is useful to know that car expenses such as maintenance costs and fuel costs are not deductible from the profit of your business. However, you can always deduct 21 cents per business kilometer.
What about VAT on car expenses?
You can deduct VAT on business kilometers in two ways.
Method 1: Establishing the business-private ratio
Establish the ratio of business/private use of your personal car.
This method involves estimating what part of the kilometers you have driven is for business purposes and what part is for personal use. Please note that for VAT purposes, kilometers are only considered business if you have made them for taxable turnover. So if you have driven kilometers to the office for tax exempted turnover, these kilometers are not business-related.
To determine the ratio, you can use a mileage tracking app or you can establish it yourself. If you want to establish it yourself, it is useful, for example, to keep track of all your business kilometers in an Excel file. If you note the mileage of your car at the beginning and end of the year, you can calculate what part of the kilometers you have driven for business purposes. You can also make the estimate in a different way. The important thing is that you have to convince the tax authorities that the estimate you made is correct.
Once you have made the estimate, you can multiply all VAT on car expenses by the estimated ratio of business kilometers, and that amount can then be taken as input tax. We will give an example to clarify this further.
At the beginning of the year, your mileage was 70,000 kilometers, and at the end of the year, your mileage was 110,000 kilometers. So you drove 40,000 kilometers that year. You also kept track of how many kilometers you drove for business purposes, let's say 25,000 kilometers. You then drove 25,000 out of 40,000 kilometers for business purposes, which is equal to 25,000/40,000 * 100% = 62.5%. You can then deduct 62.5% of all VAT on car expenses.
Method 2: VAT correction for private use of your personal car.
First, you deduct all VAT on car expenses. Then, at the end of the year, you make a correction for the part of the car that you used for private purposes. You make this correction by paying 1.5% of the list price of the car including VAT and BPM VAT. This is the correction you must make if you have had the car for the entire year. If you buy a car halfway through the year, you only have to pay half of this correction.
Example: You have already deducted all VAT on car expenses during the year (so taken as input tax). Now the year has ended, and you have to make a correction for your private use. The list price is €30,000 including VAT and BPM. 1.5% * €30,000 = €450. You still have to pay this amount of 450 euros in VAT. Did you buy the car on April 1st? Then you only have to pay three-quarters of this amount, so €337.5.
When you use your private car for business purposes, you can always charge 21 cents per kilometer. In addition, you can also deduct a portion of the VAT on the car expenses. You can determine this part in two ways, either by establishing the business-private ratio or by making a VAT correction at the end of the year.
