Taking charge of the leader’s vehicle

By Philippe Lasserre. How should the manager’s vehicle be financed? Is it worth leaving it in company care, or is it necessary to buy it in a personal capacity?

This article will of course only cover vehicles intended for the manager, namely a vehicle with 5 seats (or more) with a “Private Vehicle” registration card.

There is no standard answer to the question, it is necessary to analyze each time the individual case of each manager and each vehicle. Company cars are a very easy target for various tax formulas that combine, and end up being very expensive.

The choice of the accounting option for the manager’s vehicle is always cornelian

THE MOST TEMPTING OPTION: HAVING A COMPANY-PAID COMPANY VEHICLE

It is an idea deeply rooted in the minds of multiple generations of executives: it is interesting to have the vehicle bought by the company.

Indeed, the purchase (or rental) as well as all the operating costs of the vehicle pass into operating expenses and depreciation. The manager does not pay anything personally, it is the company that pays everything.

Simple in appearance, attractive at first sight, this idea will quickly prove to be very expensive, because the professional vehicle is the target of several tax and social measures.

Taxation of company vehicles

A car classified as “VP” undergoes multiple constraints, of which here is the synthesis.

Regarding VAT:

Tax laws do not allow a company to deduct VAT on the purchase or maintenance. All invoices are paid including VAT, without any possibility of recovering any VAT. And this is a big difference compared to commercial vehicles, which can recover all the VAT. But do you want to drive every day in a 2-seater vehicle to be able to collect VAT?

Regarding the value of the vehicle:

Here too the tax texts are not soft. The deduction of the purchase is capped: depending on whether the vehicle is classified as “polluting” or not, the deduction will be different. The tax limit is €18,300 for a normal vehicle. But if the vehicle produces more than 155 g of co² per kilometer (2017 scale), it is classified as “polluting” and the deduction limit is reduced to € 9,900.

Let’s take an example to understand. Imagine a company that buys a vehicle worth €25,000, which produces 120g of co² per kilometre. She will only be able to deduct the value of €18,300 for tax purposes, but not the difference of €6,700. The company will pay taxes on this difference, i.e. €6,700 x 28% tax rate = €1,876 more tax.

And if the same vehicle produced 170 g of co², the company could only amortize €9,900 for tax purposes and lose tax on the €15,100 difference. This costs an additional €4,228 in tax.

Regarding the special tax on vehicles:

Company-owned passenger vehicles are subject to a special tax that can quickly become expensive if the vehicle is old and classified as polluting. This can reach several thousand euros per year in the case of an older SUV.

The icing on the tax cake is that this tax is not deductible from the company’s income, and you will pay taxes on that tax.

The method of calculating this tax is complex and I refer you to the various documentations to detail it. But to illustrate the cost, I give you the example of an SUV, which produces 170 g of co², running on diesel. The annual cost is € 3,100, on which you have to pay a tax of 28% more. The total cost is 3,100 – 28% – 3,968 euros each year.

The social consequences for the leader

Here is one of the big concerns of this option: as the manager also uses the car for his personal needs in the evenings, on weekends and during holidays, the social texts consider that he benefits from a benefit in kind.

Of course, this means that the officer will have to report an additional income to take this benefit into account in kind. He will therefore pay an additional social security contributions and personal tax on this same benefit.

Is it possible to estimate this advantage precisely?

Yes, if you can measure exactly the number of kilometres driven on a personal basis in relation to the total mileage of the year. You will then have a ratio that you apply to all the costs of the vehicle: depreciation of the purchase, financial rent or leasing, insurance, maintenance and fuel. The private portion will be added to the income and you will pay social security contributions and personal tax on this additional income.

If you cannot make this precise calculation, then use the USSRAF scales: the benefit in kind is estimated at 40% of the annual rental/leasing vehicle costs, or 12% of the annual purchase value of the borrowed vehicle. And that’s as long as the vehicle is in service with the company.

Figures and calculation method as an example

Let’s take an example to understand. Let’s take back our 25,000-euro vehicle. Here are the operating costs it bears:

– a 4-year leasing financing, which gives 600 euros per month and 7,200 euros per year

– a fuel budget for 20,000 km of about 1,800 euros

– an estimated insurance cost of €1,200

– a “maintenance” fee of 500 € (estimated average)

Total cost: €10,700 per year

The benefit in kind is therefore 10,700 x 40% = € 4,280, which you will add to your income and on which you will pay the RSI (or wage and employer costs for a SAS) as well as your personal tax.

Mileage charges, the most tedious option

You have seen that the combination of the various tax and social texts makes it very expensive for the company to buy. The only way to avoid this multiple tax is to circumvent it by purchasing the vehicle in a personal capacity and charging the company travel expenses.

For this, the manager will prepare expense reports, in which he indicates the details of the kilometers he travels for the professional activity. Thus, he applies the official scale of the tax administration (capped at 7CV tax) and the calculation is simple: he establishes the score, calculates the amount owed to him, and gets reimbursed the costs.

The counterpart is that these refunds are not subject to social security contributions or personal tax, because they are real costs by definition. Is this the miracle solution? Not quite, because there are still a few rules to follow. By respecting them you will not have a problem. Otherwise, expense refunds will be considered income, with reminders of personal expenses and taxes.

Rule number 1: Real kilometers your vehicle will do

In its idiotic aspect, this remark is important, because you have to be able to justify that your vehicle has actually travelled the number of kilometres involved, and that it has also allowed it to be used privately. To do this, you have to bring maintenance bills, meter readings, … to prove that the mileage is not fictitious.

Rule Number 2: Details You Will Give

Getting reimbursed for miles is not just about carrying a total on a sheet of paper. Would you accept that from your employees, without knowing where, when and why they went? It is the same for tax and social organizations: you must present detailed expense sheets, indicating for each trip the day, the place, the reason for the trip, the person seen, the number of kilometers traveled, …

It is tedious but essential to respect the law and not have problems.

Rule Number 3: Only From the Company You Will Leave

A useful reminder: the miles you travel to get from home to work are not a refundable fee. Except in the case of the liberal professions. For executives, only the kilometres are counted for trips that leave and return from the company.

Indeed, travel expenses between home and business are already covered by the 10% deduction you have on remuneration.

How to choose the option of the manager’s vehicle

There is no standard rule to choose automatically, because it is all a matter of a particular case.

You could see that getting the company to buy a vehicle was expensive for both the company and you. The option of reimbursements of real costs is more economical for everyone, the company as well as the executive. But many leaders do not want to waste time filling out the expense sheets, but they can have them prepared by their secretariat.

Trends in the executive vehicle

However, we can give some trends observed in our daily professional life:

If the manager travels more than 20,000 professional kilometers per year, it is common that making expense sheets is more advantageous. With refunds, it quite often manages to balance the total budget of the vehicle, and it costs practically nothing on a personal level.

If the manager travels less than 10,000 professional kilometres per year, the reimbursements are not sufficient to meet the vehicle’s operating budget. And there, it can be interesting to have the vehicle bought by the company if it is not too big.

Between these two terminals, there is no typical solution: we must study each individual situation.

In the end, we can only confirm that there is no standard solution. It’s all about context: what vehicle, for what use, for what level of taxation, …

Only an advanced consultation with your accountant will allow you to make an informed choice.

Philippe Lasserre
www.experts-solutions.fr

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