Does corporate form have an effect on a company car where taxation is concerned?

Yes, it does. A limited liability company has more options than private entrepreneurs when it comes to the handling of taxation of company cars. A private entrepreneur does not have the liberty of choosing whether he will put the actual expenses of the car into his accounts or will he claim mileage allowance from the trips he does with his car that are work related. As far as private entrepreneurs are concerned, only the amount of mileage used for work travel is taken into account by the taxation authorities. This means that it makes no difference whether the car is in private or company ownership.

The taxation authorities view an entrepreneur’s car to be privately owned if less than half of the accumulated mileage within a year is work related. In this case the mileage allowance can be reduced from the work related travel on a privately owned car. The car is considered to be in company ownership if over half of the accumulated mileage within a year is work related. In this case, the amount of work related travel from the actual cost of the car is accepted in taxation. This does not mean, however, that the entrepreneur should not reduce his private travel from work related travel. A private entrepreneur cannot also reduce VAT from the purchase of a car or from its operating costs, unless the car is only in the use of the company. For example, a van is in company use only and there is a private car that is used for non work related travel.

A limited liability company has more options: The mileage allowance can be reclaimed from the company for work related travel or the company can lease or purchase a car. A company car can be used for private travel too, but this private travel must be accounted for in the payment of salary by withholding tax calculated according to the fringe benefit tax. You can consult your personal bookkeeper on which option is most beneficial for your business.

Important! Mileage allowance cannot be claimed on travel between your home and office as they count as private travel. There is an exception to this though: If you are traveling elsewhere from your home such as a sales meeting in the potential client’s office, you can claim mileage allowance on travel starting from your home.

And remember to keep track of your mileage in a diary!