Private use of business assets

What it means

Private use of business assets occurs when an entrepreneur, shareholder or employee uses company assets for personal purposes, such as a car, phone, computer or flat. Tax rules attach consequences for both income tax and VAT, because the assets were bought with tax advantages.

For income tax, a sole trader may claim expenses on assets also used privately only in the proportion relating to the business. In a company, private use of assets by a shareholder or employee is generally non-cash income of that person, valued at the customary price or under a specific rule.

For VAT, a VAT payer may deduct input VAT on purchase only to the extent the asset will be used for business, meaning it applies a proportional deduction. If the proportion changes later, the deducted VAT must be adjusted or the private use taxed.

How it works in practice

With cars, the most common question is whether the company keeps a trip log or uses a flat-rate rule. For employees with a car for private use there is a special method of calculating non-cash income under the company car for private use rules; for sole traders we compare a mileage log with a flat-rate reduction of expenses.

For phones and laptops we recommend setting out in writing whether the employee may use the device privately and on what terms. Negligible private use is often handled by a proportional reduction of expenses or payment by the employee; more substantial use by taxing the income.

If a shareholder lives in a company flat or house, we arrange rent at market level; otherwise it is a non-cash benefit or a hidden profit distribution. For VAT we must also assess whether the company was entitled to deduct VAT on the purchase at all.

What to watch out for

Private use of company assets with no arrangement at all is a frequent finding in tax audits. The tax office can reduce expenses, assess VAT and tax non-cash income, all at once and for several years back.

In a limited company, company assets do not belong to the shareholder. If the shareholder uses them free of charge, the tax office may treat it as a profit distribution, taxed differently from wages. Agreed rules that are actually followed are therefore better than quiet tolerance.