A company car for an employee, does it work?

“Company car” is a benefit that the employee receives, but the taxation accompanying this benefit leaves the employee with a sour taste and a significant damage to the employee’s salary due to high charges from the Income Tax and National Insurance.
The current situation states that the employee must be credited with the “vehicle use value” on the payslip, when as of 2016 the same value ranges from 2,710 NIS to 10,440 NIS per month.
From the employee’s point of view, it is income similar to wages, a fact that entails income tax and national insurance charges that can reach hundreds of NIS per month, and thousands of NIS per year.
If so, what can be done?
In this article we will briefly review the options available to the employer and the CEO to increase the vehicle expenses on the one hand, and increase the employee’s net worth on the other hand.

“Operating Vehicle”

A couple of words that every self-employed person likes, and this is in light of the fact that in this vehicle all expenses are fully recognized for income tax, social security and VAT, and in limited liability companies no advances are paid for “excess expenses”.

For our vehicle to be defined as operational, one of the following conditions must be met:

A security vehicle as defined in the traffic regulations, used for operational or security activities only.
A vehicle that is used only for the needs of the employer or self-employed person, when at the end of the working day the vehicle is returned to the business premises, which is not the employer’s residence, when in the case of an employee who leaves the said vehicle at his employer’s premises, and it can be proven that the use is only for the needs of the business, it is advisable to claim this expense within the framework of the law.
As you can see, the first condition is not relevant for most of the self-employed, which leaves us with the challenge of creating working conditions that will meet these conditions, and allow both the employee and the employer significant tax savings.
Here are some tips from the field for implementing this tax planning:

Mention the aforementioned condition in the employee’s employment contract.
Photographing the parking space and the vehicle for proof at a later stage.
Management of a “car log” detailing the employee’s trips on a daily basis.
It is important to know: vehicles that weigh more than 3,500 kg, or that are classified by the Ministry of Transportation as not L3 / N1 / M1 do not require tax planning and the expenses for them are recognized in full, for example: semi-trailer trucks, motorcycles up to 125 cc, etc.

“reservoir vehicle”

A new concept that was born in the world of taxation in the last year, tries to answer the injustice that exists in everything related to the car attached to the employee; and provides an “escape door” to employers and employees from the tax network of the Israeli government.

How It Works ?

The new method allows imputation of a relative value according to the days of use in the month, when in practice the number of days of use is taken divided by 30 days for the purpose of the example, and you get the % of relative use for that month.
When the vehicle remains in the possession of the employee only once at night, then there is no value at all.

At the same time, a reserve vehicle is a vehicle that meets all of the following conditions:

A storage vehicle(s) was made available to the employee (including overnight parking in the employee’s parking lot) during a calendar month for a limited number of days not exceeding ten days, as well as for a limited number of days during a calendar year not exceeding one hundred days.
No other vehicle was made available to the employee that month (he does not have an attached vehicle).
This is not a vehicle attached to an employee, but a storage vehicle designed for current activities.
The vehicle remains with the employee for the night only, beginning at the end of the employee’s full working day at the end of an activity outside the regular workplace and ended after normal working hours or in preparation for an activity outside the regular workplace the next day that requires leaving for work before normal working hours. when the vehicle will be returned the next morning to the permanent place of work, except if it is required for the activity as mentioned above the next day.
The vehicle is intended for use by the employee in a random and non-systematic manner due to the needs of the work and upon approval by the authorized body at the workplace.
The vehicle is not in the hands of the employee from the end of Thursday until Sunday, on holidays, on the Sabbath, vacation days, sick days or any other day of absence from work.

After detailing all the conditions for recognition, we were left with the challenge of creating working conditions that would meet these conditions, and allow both the employee and the employer significant tax savings.

In conclusion: the law is not always clear or fair, but as we all know, “knowledge is power”, and in our case, this knowledge is worth a lot of money.