Where the cost of repairing a damaged company car after accident is borne by the insurer and the transaction is accounted for without cash, the trader may settle the cost of repair as the cost of obtaining income and the VAT charged from the invoice paid by the insurer.
Entrepreneurs using the services of companies that insure corporate cars in the event of damage arise often use a non-cash settlement form. This means that the workshop issues an invoice for the service rendered, indicating as a recipient the company of the entrepreneur, but the claim from this invoice is paid by the insurance company.
From a technical point of view, there is no transfer of funds between the entrepreneur and the workshop, and the financial situation of the entrepreneur is not reduced.
In such a situation, entrepreneurs sometimes have doubts about how to settle the invoice received from the workshop, in particular whether they can deduct VAT charged from this invoice and whether expenditure can be classified as the cost of obtaining income.
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VAT clearance
The right to deduct shall be granted to the extent that goods and services purchased by taxable persons are used to carry out taxable activities (see Article 86(1) VAT Act). The acquisition of the right of deduction is independent of the way the purchases are financed.
The key issue in the case of the so-called ‘cashless’ financed by insurers is that the damage was created on the part of the entrepreneur and that the entrepreneur is in this situation ordering the service by the workshop, the damage was incurred in the entrepreneur's assets, and the insurance undertaking only returns its value in accordance with the insurance contract and therefore pays compensation.
Uncash settlement is only a technical way to pay compensation, and this does not change the fact that the taxpayer who pays the cost of repair in this case is the taxpayer, which is crucial for the settlement of both VAT and income tax.
Consequently, the right of deduction may also be granted in the case of the purchase of car repair services which are financed partly or wholly by insurance undertakings.
This is confirmed by the tax authorities in the explanations provided, as can be illustrated by the interpretation of the Tax Chamber in Katowice with 11 April 2014 (IBPP2/443-50/14/KO).
In this interpretation, issued at the request of a taxable person who has received an invoice for the repair of an accident car paid entirely by an insurance company, we read that “the person concerned will be entitled to deduct the input tax included in the invoice for the repair of the accident car described, according to Article 86(1) laws, taking into account restrictions arising from Article 88 Laws".
In turn in the judgment of the WSA in Wrocław with 17 September 2013 (I SA/Wr 722/13) we read that, as the tax authority rightly stated, all conditions for granting the Company the right to deduct the input tax resulting from the VAT invoice received were fulfilled in the actual condition described by the Company in the application.
The company is an active VAT taxpayer, a purchaser of the car repair service, and a repaired car is used for the purposes of the Company's business activity, i.e. for carrying out taxed activities.
It is impossible to agree with the applicant that the purchaser of the car repair service is the insurer, because the Company orders the repair and repair of the vehicle belonging to the Company. It is not important that part of the repair costs (in net amount) are borne by the insurer.
Training about the settlement of the car in business and the settlement of the car in the company can be found HERE
In cases where a passenger car in a company is used in a mixed manner (both for business and other purposes), the amount of tax charged from the invoice received for the repair of cars is limited to 50% (see Article 86a(1) VAT Act). In such situations, also where the repair is accounted for without cash (by paying the repair fee directly to the workshop), only half of the VAT can be deducted. This position was confirmed in the interpretation of the KIS of 28 December 2017 (0115-KDIT1-2.4012.798.2017.1.AW):
(…) The passenger car uses the right to deduct for business purposes 50% the amount of input tax resulting from invoices documenting the repair of this car, taking into account the limitations resulting from the Article 88 Act – regardless of the fact that the insurer paid part of the claims for the abovementioned invoice.
Other claims — i.e. 50% the VAT amounts from this invoice, which cannot be settled as input VAT, shall be financed from the taxpayer's own resources.
Income tax clearance
According to the Income Tax Act, the cost of repairing a car in principle represents the cost of obtaining income, but with some exception, according to Article 16(1)(50) CIT (as appropriate Article 21(1)(23) PIT) cannot be included in the cost of obtaining revenue from losses resulting from the loss or liquidation of cars and the cost of their post-accident repairs if the cars were not covered by voluntary insurance.
This is a provision to encourage entrepreneurs to use AutoCasco insurance.
Therefore, where the entrepreneur has AC insurance and the cost of repair is financed by the insurer using the non-cash repair settlement model, the net amount of the invoice (and the non-VAT deduction for its partial settlement) may be included in the cost of obtaining revenue.
This position was confirmed, among others, in the interpretation of the Director of KIS on 19 April 2019 The signature. 0111-KDIB2-1.4010.58.2019.2.BJ
At the same time, the value of the compensation granted by the insurer constitutes tax revenue in this case. It does not matter whether the compensation is paid to the entrepreneur's account or to the workshop's account as payment for the service rendered.
The method presented in this text of settling the costs of repairing company cars financed by insurers at present does not raise much doubt, but in any case it is important to note whether the accounts are properly documented in order to avoid the risk of being contested by tax authorities.
Author: Leszek Dutkiewicz, partner Russell Bedford Poland. Associated with the company from 2011. Director of RBP office in Katowice. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services.
He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices. Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.