Private use of a company car: how the VAT correction works

Why do you have to correct?

You may only deduct VAT to the extent that you use something for business. With a company car you simply reclaim the VAT on fuel, maintenance and the purchase or lease during the year. You then settle the private use in one go, in the VAT return for the final period of the year. Note: this is separate from the addition to taxable income in income tax. Those are two different schemes.

How do you calculate the correction?

There are two routes. If you keep a watertight mileage record, you calculate the actual private use: the private share of your kilometres determines which part of the deducted VAT you pay back. For VAT purposes, commuting counts as private, unlike for the addition to taxable income.

If you don't keep a mileage record, you use the flat rate: 2.7 percent of the car's list price, including VAT and registration tax. Couldn't you deduct VAT on purchase, for example with a margin-scheme car, or has the car been in use for more than four years after the year it was first used? Then the lower flat rate of 1.5 percent applies.

A worked example

Suppose your car has a list price of 30,000 euros and you use the 2.7 percent flat rate. The correction is then 810 euros. You report this amount as VAT payable in section 1d of your final return of the year. For a margin-scheme car at the same price it is 450 euros.

What's sensible to do?

Check each year whether the flat rate or actual use works out better for you. If you drive few private kilometres and already keep records, the actual calculation is often more favourable. Don't forget the correction: in an audit this is one of the first things the tax authorities look at.