Company car for private use

Company car for work purposes only

If an employee uses a company car exclusively for work purposes – i.e. to perform his/her work within the scope of employment (e.g. business trips, client visits, delivery of goods, etc.), the situation is much simpler and less administratively demanding in terms of taxes, levies and accounting than in the case of combined (business and private) use.

If the employee has the vehicle at his disposal only for business purposes, no non-cash income is earned. Therefore, the employer does not have to “add” any amount to the employee’s wages, and no taxable income or social security and health insurance contributions arise.

Crucially, the vehicle is not made available to the employee for private purposes. Typically, this means that:

• leaving the vehicle at the workplace after work,
• the vehicle is not available outside working hours,
• or uses the vehicle only with the consent of a supervisor for business travel.

In this case, the employer is required to keep a log book to prove that the company vehicle is actually used exclusively for work purposes.

All expenses related to the operation of such a vehicle are tax deductible for the employer, as the vehicle is used solely for the purpose of generating taxable income. Examples of deductible expenses include depreciation on the purchase price of the vehicle, fuel, repairs and maintenance, insurance, as well as motorway tolls and parking fees. If the vehicle is not made available for the employee’s private use at all, then no deduction should be made for these expenses.

Alternatively, a so-called flat-rate transport expense of CZK 5 000 per month can be claimed, but again only on condition that the vehicle is not even partly used for private purposes.

However, in many cases, employers will make the company car completely available to their employees and allow them to use it for private purposes. In this case, the company car becomes an employment benefit and changes the conditions for its use, taxation and deductions.

The company car as a non-cash income of the employee

If an employer provides an employee with a company car also for private purposes, the employee receives so-called non-cash income which enters the income tax base. This income is not calculated on the basis of the actual use of the car, but on the basis of the entry price of the car and a specified percentage, for each and every month that the employee has the car at his disposal

The specific amount of non-cash income varies according to the emission category of the vehicle:

• 0.25% of the entry price of the vehicle per month if it is an emission-free vehicle (e.g. electric car),
• 0,5 % for a low-emission vehicle (e.g. plug-in hybrid),
• 1 % for other conventional road vehicles.

Zero-emission vs. low-emission vehicle

For income tax purposes, a zero-emission vehicle is a road motor vehicle which:

• uses exclusively electric energy or hydrogen,
• or is another vehicle whose operation produces no CO₂ emissions.

Typical examples are electric or hydrogen fuel cell vehicles.

A low-emission vehicle, on the other hand, is any other road motor vehicle that:

• complies with the requirements for a low-emission vehicle under a specific law on the promotion of low-emission vehicles,
• but does not meet the requirements of a zero-emission vehicle.

So, for example, plug-in hybrids that can run on electricity for part of the journey but still produce CO₂ emissions in combined operation – albeit at a relatively low level.

At the same time, the law sets a minimum amount of this income, namely CZK 1,000 per month – even in cases where the percentage calculated would be lower.

This non-cash income is added to the employee’s wages and is subject to normal taxation andsocial and health insurance contributions . The advantage of this scheme is its simplicity – it does not matter how many kilometres the employee drives privately, but only that the car is available for private use.

How to determine the entry price of the vehicle

The entry price is usually the purchase price including VAT, i.e . the amount that the entrepreneur or company pays for the purchase of the car. This amount may also include other expenses related to the acquisition or putting the car into use – for example, the depreciation cost when buying a car off a lease, non-recognisable lease payments or use deposits if the business does not keep accounts. Also deductible expenses for repairs or modifications to the car made shortly before it was classified as a business asset. These costs then affect the amount of depreciation.

Business car for private use – calculator

Emission-free vehicle (e.g. electric car)

An employee is provided with an emission-free car with an entry price of CZK 1 000 000 including VAT. As it is an emission-free car, the employee’s income is calculated as 0,25 % of the entry price for each month.

• Calculation: 0,25 % × CZK 1 000 000 = CZK 2 500/month

Low-emission vehicle (e.g. plug-in hybrid)

The employee has a plug-in hybrid with a purchase price of CZK 800 000 including VAT. A rate of 0,5 % is applied to this type of vehicle.

• Calculation: 0.5% × CZK 800 000 = CZK 4 000/month

Ordinary passenger car (e.g. petrol car)

An employee is provided with a car with a purchase price of CZK 500 000 including VAT, which is neither low-emission nor emission-free. A rate of 1% will therefore apply.

• Calculation: 1% × CZK 500 000 = CZK 5 000/month

Multiple company cars in one month

If an employee is allocated different vehicles in one month but uses them consecutively, only the one with the highest entry price is counted. However, if he uses several cars at the same time, their values are added together. Let’s explain how this works in practice with examples:

An employee changes cars in a month

Mrs Lucie, a sales representative, first had a petrol company car worth CZK 400,000 in May. However, it broke down on 12 May and the company allocated her a replacement electric car with a purchase price of CZK 1 000 000.

Although she only used one car for part of the month and the other for the rest, for tax purposes the exact days are not relevant – the highest purchase price of the vehicles available to her is the decisive factor. As the electric car cost more and falls into the category of emission-free vehicles, her non-cash income for May is 0.25% of this amount, i.e. CZK 2,500.

An employee uses several cars at the same time

Mr Marek is a technical director and has three cars assigned to him in the company which he can also use privately – a car, a hybrid SUV and an electric car. All cars are permanently at his disposal.

As he uses the cars simultaneously, only the most expensive one is counted, not each one separately. His monthly non-cash income then looks like this:

• 500,000 CZK petrol car → 1% = 5,000 CZK
• hybrid car for CZK 800 000 → 0.5% = CZK 4 000
• an electric car for CZK 1 200 000 → 0.25% = CZK 3 000

So in total, Mr. Mark gets CZK 12,000 per month

Company car and fuel

Fuel reimbursement is possible in two basic modes:

The employee pays for the fuel himself

The most common option is that the employee pays for the fuel consumed during private journeys himself. This can be done, for example, by payroll deduction, reimbursement or refuelling the car to its original state.

The employer pays for the petrol

If the employer also reimburses the fuel consumed during private journeys, this is additional non-cash income for the employee, which must be included in the employee’s salary and taxed in the same way as ordinary income (including social security and health insurance contributions).

Duties of the employee

An employee who is allowed to use the official car outside working hours shall keep a detailed logbook. This is crucial to distinguish between business and private travel, which is essential for fuel cost accounting and for the employer’s tax records.

At the same time, the employee is obliged to comply with the employer’s internal rules or the agreement on the use of the company car. These rules may specify, for example, the maximum number of kilometres allowed for private driving, the conditions for refuelling, liability in the event of an accident or the prohibition on lending the car to third parties.

Obligations of the employer

Employers who allow their employees to use company cars – whether for work purposes only or for private use – must comply with a number of tax, accounting and employment law rules.

If the vehicle is also available to the employee for private driving, this is considered a non-monetary benefit. In such a case, the employer is obliged to tax this benefit – usually at an amount equivalent to 1% of the entry price of the car (including VAT) per month. It is irrelevant whether the employee actually uses the car privately – it is the possibility of use that is decisive. As a minimum, at least CZK 1,000 must be added to the employee’s salary each month and social security and health insurance must be paid on this amount.

The employer is also responsible for the correct accounting treatment of operating costs. For vehicles intended solely for official use, all expenses may be claimed in full. If the use of the car is combined (business and private), the costs must be reduced accordingly or their tax deductibility must be supported by the proportion of actual use. Alternatively, a legal entity may claim a flat-rate transport expense of CZK 5 000 per month, but only if the vehicle is not used for private purposes.

Keeping a logbook is also part of the obligation. Although the book is physically filled in by the employee, the employer is fully responsible for its accuracy and archiving . In the event of an audit, it serves as important evidence of the legitimacy of tax expenses.

Last but not least, the employer is obliged to ensure that the vehicle is adequately insured – both statutory(compulsory liability) and, where applicable, accident insurance. It is also advisable to enter into a written agreement with the employee on the use of the car, which clearly sets out the conditions for its use – for example, the maximum number of kilometres, how fuel is to be paid for on private journeys, liability for damages or rules in the event of an accident.

What a journey book should look like

The logbook should contain information that shows whether the vehicle was actually used forwork or private purposes. The records serve not only for internal monitoring but also, and in particular, as evidence for the tax authorities in the event of an inspection.

At the beginning of the logbook, the vehicle’s identification data should be given: i.e. the type of vehicle, the registration number (registration plate), as well as the starting and ending tachometer reading – specifically on 1 January and 31 December of the year in question. These data make it possible to verify the total annual mileage and its distribution between work and private journeys. It is also necessary to record the date on which the vehicle was used for business purposes and, where appropriate, the date on which it ceased to be used.

The average fuel consumption is also an important figure and must correspond to the values indicated in the large technical certificate. This is often the basis for calculating the fuel allowance – for example, in cases where the vehicle is not held in commercial ownership.

Each journey must then be recorded in the logbook. Specifically, you should remember to include:

• The date of the drive – each individual drive must be recorded with a specific date.
• Purpose of the ride – e.g. “purchase of office supplies”, “client visit”, “vacation”, etc.
• Place of departure and destination – i.e. from where and where to go, e.g. “Prague – Brno”.
• Number of kilometres travelled – for each journey separately.
• The odometer reading at the start and end of each journey to verify the distance travelled.
• Driver’s name – especially if the vehicle is shared by several employees.

The logbook can be kept manually (paper form), in a spreadsheet program (e.g. Excel), or using electronic applications or GPS systems. It is essential that the individual entries in the logbook are arranged chronologically and follow each other logically.

Advantages and disadvantages of a company car

Advantages for employees

• You do not pay the purchase price of the car – the vehicle is not yours, but you can still use it.
• You don’t have to worry about maintenance, servicing or insurance – your employer takes care of all the running costs.
• You can use the car outside of work – for example, for a whole weekend, a long holiday or normal personal travel.
• You don’t have to own a car – so you save on the investment in a private car.
• The vehicle is likely to be modern, well equipped and safe – companies often buy newer cars.
• You save time – you don’t have to worry about maintenance, MOTs or winter tyres.

Disadvantages for employees

• You’re taxed on non-cash income – each month you’ll have 1%, 0.5% or 0.25% of the entry price of the car (including VAT) added to your gross pay and pay tax, national insurance and health insurance on it. This amount is deducted even if you don’t use the car much, because the most important thing is that you have it at your disposal.
• You must keep a log book – you must record which journeys were work and which were private.
• You pay for the fuel for private journeys – either by reimbursement or by deduction from your wages.
• You must follow company rules – for example, you can only drive a limited number of kilometres.
• In the event of an accident, you may be liable – the exact terms depend on the agreement with your employer.

Benefits for the employer

• You gain a competitive advantage in the job market – a company car is an attractive benefit.
• You can claim the cost of the vehicle against tax – if the vehicle is used for business travel, you can include most of the cost as a tax-deductible expense.
• You can claim a VAT deduction – if the vehicle is used for economic activity.
• You set clear rules on use – you can restrict private driving, set reimbursement or insurance limits.
• You own the vehicle, so you retain control over its use and condition.

Disadvantages for employers

• You have to keep track of the employee’s non-cash income – count it as part of their pay each month and pay tax.
• In the case of private use, you cannot claim a flat rate for transport – you must record the actual cost.
• You need to keep a careful log book – ideally electronically, otherwise there is a risk of the taxman disputing the costs.
• Limited VAT deduction in case of combined use – you must calculate the ratio of business and private mileage.
• Increased administrative burden – record keeping, inspection, fleet maintenance, insurance etc.

Summary

An employee can use a company car either for work only or for private purposes. If it is used exclusively for work activities, no non-cash income is generated and the operating costs are fully tax deductible for the company. However, once the car is also provided for private driving, it is considered a taxable employee benefit. The amount of this income is determined as a percentage of the purchase price of the car: 1% for a regular car, 0.5% for a low-emission car and 0.25% for a zero-emission car. A minimum of CZK 1 000 per month is added.

Employees usually pay for their own fuel for private journeys or generate additional taxable income. It is obligatory to keep a log book and follow company rules, for example regarding mileage limits or liability for damages.

The advantage for the employee is that he does not have to own the car or take care of its operation. The disadvantage is the taxation of the income and the administrative obligations. For employers, a car is an attractive benefit, but it carries a greater tax and accounting burden and the need for accurate record keeping.