Can buying a bike be an expense?

Tax matters are never straightforward. However, the situation here is clear. If you run a business and the bicycle will be used within its framework, there's no reason why it could be considered a business expense. It doesn't matter whether the buyer is a sole proprietor or a company. In the latter case, it may be necessary to demonstrate that the bicycle (or bicycles) will be needed by the entity, for example, to enable employee mobility. This issue is particularly important because, from a cash perspective, we're talking about potential savings of over 40% off the bike's price. Therefore, let's take a closer look at a few issues. And for those who prefer to save money, we remind you that our bikes can be purchased in convenient installments !

Can I deduct VAT on a bicycle purchase?

The question makes sense, as cars are subject to special restrictions in this context. And they're a much more popular means of corporate transportation. A bicycle, however, has many advantages over a car, including the ability to fully deduct VAT on the expense. It doesn't matter whether the vehicle is new or used, or the amount of money spent. Individual interpretations issued by individual Tax Chambers do not constitute a generally applicable interpretation of the regulations. However, they do indicate the practice used by tax authorities. Regarding the possibility of deducting VAT on the purchase of a bicycle, interpretation no. IBPP2/443-377/14/KO was issued. The most important conclusions from the above-mentioned decision of the Tax Chamber indicate the conditions that must be met:

1. You must, of course, be an active taxpayer of goods and services tax.
2. The purchased bicycle should be used only for activities subject to VAT.
3. A bicycle is, beyond any doubt, not a motor vehicle, and therefore the legal provisions of Article 86a of the VAT Act do not apply to it.

Will the purchase of a bicycle always constitute a tax-deductible expense?

Unfortunately, no. A general definition of what constitutes a tax-deductible expense is difficult. These are all expenses related to business activity and incurred to generate new revenue or secure existing income. For sole proprietors, the matter seems relatively straightforward. Most self-employed individuals provide services. A bicycle can be used to commute to the place of business, to contractors, to the bank, etc. Importantly, there is no reason why owning a car that is also used for business activities should affect the possibility of favorable tax treatment for a purchased bicycle. Especially in cities, bicycles can be used interchangeably, similarly to, for example, public transport and a car. Yes, it's important that the expenses are economically justified. What does that mean? For example, the proportion between income and expenses must be maintained. If our average monthly income is around 6,000 PLN, buying a bike for 25,000 PLN might be risky...

Can the purchase of bicycle parts be considered a deductible expense?

If our business is not related to the production or sale of such components, we obviously cannot consider such expenses to be justified. However, there is one exception: if we build a bicycle from parts purchased independently or as part of a service provided by someone else, such purchases will be classified as an expense for tax purposes. It is important to meet the following criteria:

• a bicycle assembled in this way is complete and fit for use on the day it is accepted for use,
• the expected period of its use for the purposes of business activity is longer than one year (the decision in this respect rests with the taxpayer),
• is used by the taxpayer for the purposes of his business activity or has been put into use on the basis of a lease, tenancy or leasing agreement

Depending on the total expenses, a fully assembled (and therefore usable) bicycle is entered into the equipment register (if the amount exceeds PLN 1,500), or alternatively, into the fixed asset register (if the value exceeds PLN 10,000 – see below).

Will purchasing a bicycle be an ongoing expense or will such an expense be depreciated?

As a rule, expenses exceeding PLN 10,000 net (gross for those eligible for VAT exemption) incurred on fixed assets that will be used for more than 12 months should be depreciated. In such cases, the vehicle is entered into the fixed asset register and depreciated at a rate of 18% per year (the rate for the 790 KŚT group). For those not particularly familiar with accounting and taxes, depreciation is a way to account for the costs of using a fixed asset over a longer period. The purchase itself is already incurred when the invoice is paid (or settled, for example, with a loan or in lease installments). However, the expense for tax purposes is the amount that is "virtually" added to the costs (without any cash outlay). If the rate is 18%, that means roughly two things. Every month, we add 1.5% of the (net) purchase value to the costs. And we'll be doing this for a little over 5.5 years. Please don't ask how the useful life was estimated... This same group of fixed assets includes, among others, "vehicles drawn by animals other than horses." Note: Special regulations currently apply to start-ups and small taxpayers. They can depreciate a bicycle on a one-time basis , even if its value exceeds PLN 10,000. This is related to other regulations, including those regarding permissible public aid, so we recommend consulting a tax specialist.

Can the purchase of an electric bike be a cost?

The growing popularity of electric bikes prompted a question from the Director of the National Tax Information Service. The taxpayer indicated that she already owned a bicycle for private use. She intended to purchase another, electric-powered one to replace her car for commuting to clients. This was motivated by a desire to reduce costs and, at the same time, concerns about traveling by public transport (due to the coronavirus epidemic). In his interpretation (no. 0112-KDIL2-2.4011.646.2020.3.IM), the Director of the National Tax Information Office (KIS) agreed that purchasing a bicycle could be a business expense. He also emphasized that expenses that have a causal relationship with generating income or maintaining or securing its source are considered expenses. "The net cost of purchasing an electric bike can be treated as a cost of obtaining revenues and recorded as a fixed asset. However, the amount representing VAT will not be a tax-deductible cost because it is not part of the initial value of the fixed asset," the aforementioned interpretation stated. As mentioned above, taxpayers have three options. As long as the bicycle expense doesn't exceed PLN 10,000, they can deduct it directly, include it in fixed assets and depreciate it, or apply a one-time depreciation. If the primary purpose of the bicycle is to use it for business purposes, it can be classified as a fixed asset. In this case, the initial value should be determined at the net purchase price. Then, a one-time depreciation write-off should be made and included in the tax-deductible costs, either in the month it is put into service or the following month. This is where things get really interesting. The proper interpretation of the applicable regulations required the development of case law by the Court of Justice of the European Union . In principle, things seem simple. The currently applicable VAT rate (23%), specified in Article 41, Section 1 of the Act of 11 March 2004 on Value Added Tax, is reduced to 8% for goods and services listed in the annex to the regulation. The aforementioned regulation, which lists goods and services for which the tax rate is reduced to 8%, includes bicycle repair services (PKWiU 95.29.12.0). Therefore, beyond any doubt, repair, renovation, refurbishment, and other services involving bicycles benefit from the reduced rate of 8%. Okay, but what about the parts and materials used in providing such services? Because their sale is taxed at the standard rate (23%). This is where the aforementioned CJEU comes in. In a completely different case (IT services), a ruling was issued that is relevant to our case. It ruled that if two (or more) activities performed by a taxpayer for a consumer are so closely linked that they form a single entity that makes no sense to separate, then all of these activities constitute a single supply for value added tax purposes. In other words, if, for example, a service involves replacing an inner tube, which requires removing the old one, fitting a new one, and so on, then not only the service but also the goods supplied as part of it will be subject to the reduced rate. What's important from a practical perspective? The established rule was that fulfillment of the above-mentioned criteria was documented in the form of an invoice or bill, where the product cost was included in the service name (i.e., "service...with goods").