Hybrid or diesel car tax deductibility as an independent
Since 1 January 2020, a new formula has been used to calculate the amount that both sole traders and companies can deduct from their tax for car expenses. The new amounts that car owners can deduct petrol and diesel cars are lower than before.
All car costs, including fuel costs that used to be deducted at a flat rate of 75%, now have to be deducted as a percentage determined by the new formula. A positive note: the financing costs of your car remain 100% deductible.
In addition, as of 1 January 2021, a new method is being used to determine CO2 emissions
levels for brand new cars. For every new car in the future, a CO2 emissions level will have to be determined according to the Worldwide Harmonized Light vehicle Test Procedure. The WLTP is a more stringent test and leads to higher CO2 emissions levels. To state the obvious, car taxation has undergone serious tightening in recent years. That is why Digicount has drawn up some simulations that clearly frame the new legislation and give you an overview of the changes.
Freelancers who are planning to buy a new car would do well to investigate the TCO (Total Cost of Ownership) of their new car.
That amount not only takes into account the purchase value of the car, but also all other costs associated with owning (and driving) the car. To find out the TCO of your new car, you need to estimate the number of kilometres that you will drive per year.
Unsurprisingly, investing in classic petrol or diesel cars is even more disadvantageous now due to the recent reforms. The Digicount simulation shows that in many cases it is
financially interesting to invest in a slightly more expensive hybrid car.
The simulation compares two different models of the same type of car, namely the
Mercedes-Benz A180d and the Mercedes-Benz A250e. Below you can see the specifications of these two models side by side.
Below, you can see what these recent updates mean in terms of calculating the deductible amount.
It’s important to note that many cars currently on the road still have a new European driving cycle (NEDC) emissions level due to the fact that the WLTP method is only used to
determine the CO2 emissions levels for brand new cars. Car owners who have a car with a
known NEDC emissions level, will therefore still be able to follow the NEDC system. As of
January 2021, all CO2 emissions levels for brand new cars will be determined using the WLTP standard, the stricter method.
Total cost of ownership (TCO)
In this simulation, we assume that there is no private contribution and all fuel and electricity costs will be taken care of by the legal company structure. This means 40% of the benefit in kind will be added to the disallowed expenses and will therefore be taxed through the company.
In the comparison below, focus on the catalogue price relative to the total cost of
ownership. Although the hybrid car is more expensive to buy, it's almost €30.000 cheaper in TCO after five years of ownership.
To determine the total cost of ownership, the following costs need to be taken into
• Annual driving tax
• Road tax
• Fuel costs
• Non-deductible VAT
• Disallowed expenses
A visual representation of the difference in TCO between both models is represented below:
1: A250 E (hybrid)
2: A180 D (diesel)
The introduction of these new reforms ensure no more flat rates and a unique
deductibility rate for every car.
As illustrated, the deductibility rate for the Mercedes A-class diesel variant is 69%, whereas the costs for the hybrid variant can be deducted entirely.
Pay attention to the catalogue value and the resulting TCO of the two vehicles in this
simulation. Although the diesel car is cheaper in purchase value, it is a lot more expensive than the hybrid variant over a five-year period, with 25,000 kilometres being driven annually.
This article is by accountancy company Digicount.
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