Entrusting a company car to an employee is common practice in Polish businesses, but it carries certain legal and tax risks. A properly drafted entrustment agreement (umowa powierzenia) can protect the employer’s interests and set out the employee’s obligations clearly. Today, when company vehicles make up a significant part of a business’s assets, regulating how they are used properly becomes crucial for the organisation’s legal and financial security. A change in how the car is used may also require a VAT adjustment when a car's use changes.
A company car entrustment agreement is a document that sets the rules for handing a vehicle over to an employee and defines the employee’s liability for the entrusted property. Although the law does not require such agreements, practice shows that they are essential for managing a vehicle fleet properly and minimising the company’s financial risk.
Legal basis for a car entrustment agreement
Liability for property entrusted to an employee is regulated in Article 124 of the Labour Code (Kodeks pracy). Under the current rules, employers have no formal obligation to conclude entrustment agreements with their employees. With cars, however, there is a real risk involved in handing them over to staff.
Article 124 of the Labour Code is the legal basis for agreements entrusting property to employees. It provides for the employee’s full liability for damage to the entrusted property, with the possibility of being released from liability in specific circumstances
Examples of risks include road collisions, traffic accidents and passing the vehicle on to unauthorised persons. For this reason, it is worth paying proper attention to drafting appropriate contractual clauses that protect the employer’s interests and clearly define the scope of the employee’s liability.
The Labour Code does not define an entrustment agreement; only Article 124 contains rules shaping the employee’s liability in this area. Under this provision, an employee who has been entrusted with property with an obligation to return it or to account for it is liable in full for damage to that property.
An employee can be released from liability for damage to entrusted property if they prove that the damage arose for reasons beyond their control. This applies in particular where the employer failed to provide conditions allowing the entrusted property to be secured
According to the dictionary definition, entrusting means assigning someone a function or task, or giving something to someone to use or to keep. In practice, the view has developed that for a car to be entrusted effectively, the employee must genuinely agree to accept liability in a way that leaves no doubt.
Tax implications of company cars
Since 1 April 2014, the Polish VAT Act has contained a presumption that cars are used for mixed purposes. This means it is assumed by default that the taxpayer uses vehicles both for business and for private purposes. The business owner must prove that the car is used exclusively for business purposes.
The presumption of mixed use of cars has applied since April 2014 and assumes that vehicles serve both business and private purposes. The business owner must prove that the vehicle is used exclusively for business to avoid negative tax consequences
If the taxpayer wants to deduct 100% of VAT, the Act requires the exclusively business use of the vehicle to follow from the rules set for its use (vehicle use policy) and to be confirmed by a vehicle mileage log (Article 86a(4)(1) of the VAT Act); the taxpayer must also file the VAT-26 notification (information to the tax office about vehicles used exclusively for business, Article 86a(12)). These documentation obligations are crucial for settling VAT and income tax on company cars correctly. If an employee may also use the company car privately, they receive employment income in a fixed amount: PLN 250 per month for cars with an engine power of up to 60 kW and for electric and hydrogen cars, and PLN 400 per month for other cars (Article 12(2a) of the PIT Act (personal income tax)). Replacement car costs, for example while a company car is being repaired, are settled separately.
A vehicle use policy should set clear rules on:
- The business purposes for which the vehicle may be used
- Procedures for reporting private journeys
- Rules for settling fuel costs and other expenses
- The employee’s duties in looking after the vehicle
- Procedures in the event of a breakdown or collision
Keeping a vehicle mileage log requires systematically documenting every use of a vehicle that is meant to serve the business only. The log should include the registration number, the consecutive entry number, the date and purpose of the trip, a description of the route, the number of kilometres driven, the driver’s full name and the odometer reading (Article 86a(7) of the VAT Act). We handle VAT and cost settlements for company cars, including the VAT-26 notification, as part of our bookkeeping services.
Key elements of a car entrustment agreement
A properly drafted company car entrustment agreement should contain all the elements needed for the document to be legally effective and to protect the employer’s interests fully. Each of these elements plays an important role in the structure of the agreement.
Identification and formal details
The agreement must state the date and place it was concluded, which matters for determining when the parties’ rights and obligations arise. Stating the time and place of conclusion precisely can be important in the event of a legal dispute.
The entrusted car should be identified by all of its identification details. State the make, model, year of manufacture, registration number, engine number and chassis number to avoid any doubt about the subject of the agreement
Pay particular attention to identifying the entrusted car precisely. The agreement should contain the full set of vehicle identification details, including the make, model, date of manufacture, engine number, chassis number and registration number. Such precise identification reduces the risk of mistakes and disputes about the subject of the agreement.
Scope of entrustment and accessories
Optionally, you can describe the entrustment of items belonging to the car. Examples include the registration certificate, the insurance policy, a set of keys, GPS navigation, a company phone or other additional equipment. Listing in detail all the items entrusted together with the vehicle prevents later misunderstandings. If the employee uses their own handset, reimbursement for a private phone comes into play.
The agreement should contain an explicit confirmation that the employee has taken possession of the motor vehicle. This element is of key legal importance, because the employee’s liability for the entrusted property begins when they take possession of the vehicle.
Conditions of use and return
The scope of use of the car should be clearly defined, for example in line with its intended purpose and taking into account the employer’s rules or other internal policies. This may include:
- Geographical restrictions on the area of use
- A ban on, or a limit to, private use of the vehicle
- An obligation to obtain consent before passing the vehicle on to others
- Rules of conduct in the event of a breakdown or accident
- Obligations related to servicing and maintenance
The conditions for returning the car should include detailed requirements for the vehicle’s condition at the time of return. State the acceptable level of wear and tear and the procedure for assessing the vehicle’s technical condition on handover
The conditions for returning the car must be precisely defined, including the condition in which the vehicle should be returned, the return deadlines and the procedures for handing the vehicle back to the employer.
Employee liability for entrusted property
Shaping the employee’s liability is the most important element of an entrustment agreement, taking into account Article 124 of the Labour Code. Under this provision, the employee is liable in full for damage to the entrusted property.
The employee’s liability covers the following aspects:
| Type of liability | Scope | Legal basis | Exceptions |
|---|---|---|---|
| For material damage | Full amount of the damage | Article 124 § 2 of the Labour Code | Reasons beyond the employee’s control |
| For theft of the vehicle | Value of the vehicle | Article 124 § 2 of the Labour Code | No conditions for securing the vehicle |
| For fines and offences | Full liability | Road traffic regulations | Not applicable |
| For damage to third parties | In line with the OC (third-party liability) policy | Insurance Act | Policy limit |
An employee can be released from the liability set out in Article 124 of the Labour Code if they prove that the damage arose for reasons beyond their control. This applies in particular where the employer failed to provide conditions allowing the entrusted property to be secured
An important aspect is setting out the procedure to follow when damage occurs. The agreement should specify the employee’s obligations to:
- Notify the employer of the damage without delay
- Cooperate with insurance companies
- Document the circumstances in which the damage occurred
- Take part in claims settlement proceedings
Formal requirements and practical aspects of the agreement
An oral agreement is permitted, but a written version makes it much easier to prove the terms of the entrustment. In its judgment of 19 April 2010, case no. II PK 307/09, the Supreme Court (Sąd Najwyższy) stressed that, in addition to the employee’s consent, the property must also be entrusted in an appropriate way.
Effective entrustment of a car requires the employee to take actual possession of the vehicle and be able to control it in conditions that allow the property to be secured. The employee must be able to protect the vehicle against access by unauthorised persons and keep it in a condition consistent with its intended use
According to case law, the employee must take actual possession of the vehicle and be able to control it in conditions that allow the property to be secured against access by unauthorised persons. In addition, they must be able to keep the property in a condition consistent with its intended use, and then return it or account for it.
Procedures for concluding the agreement
The process of concluding an entrustment agreement should include the following stages:
- Preparing the vehicle documents and checking its technical condition
- Talking to the employee about the rules of use
- Introducing the employee to the company vehicle use policy
- Drawing up a vehicle handover report (protokół zdawczo-odbiorczy)
- Signing the entrustment agreement by both parties
- Giving the employee a copy of the agreement and the vehicle documents
- Making the relevant entries in the employee’s HR records
A transport company entrusted lorries to its drivers on the basis of written agreements. One of the employees caused a collision by failing to adjust his speed to the road conditions. Thanks to a properly drafted entrustment agreement, the company was able to claim compensation from the employee for the damage, because the agreement clearly defined his full liability for the entrusted property.
Clauses on termination of the agreement
The entrustment agreement should contain precise clauses on its termination. This may happen in various circumstances:
- When the period for which it was concluded expires
- By notice given by either party
- When the employment relationship ends
- In the event of a gross breach of the agreement
- When the employee loses the right to drive vehicles
Termination of the entrustment agreement should be preceded by a formal, documented return of the vehicle together with an assessment of its technical condition. Any damage or missing items found must be documented and settled in line with the agreement
The termination procedure must take into account how any damage, receivables and obligations of the parties will be settled. It is particularly important to set deadlines for returning the vehicle and procedures for assessing its condition when the agreement ends.
Entrustment agreement template – key elements
A complete company car entrustment agreement should contain all the elements that make it legally effective and practically useful. Below are the most important components of such a document.
Parties to the agreement and basic details
The agreement must precisely identify the parties:
- Employer’s details (company name, address, NIP (tax identification number), REGON (statistical number))
- Employee’s details (full name, home address, PESEL (national ID number))
- The legal basis of the employee’s employment
- The employee’s position
Subject of the agreement and its description
A detailed description of the entrusted vehicle should include:
- The make and model of the car
- Year of manufacture and registration number
- Engine number and chassis number (VIN)
- The vehicle’s mileage at the time of entrustment
- Technical condition and additional equipment
- The value of the vehicle according to the accounting records
In addition, list all the accessories and documents handed over with the vehicle:
- Registration certificate and roadworthiness approval
- A set of keys (main and spare)
- OC and AC (autocasco, own damage) insurance policy
- Owner’s manual and service book
- Mandatory equipment (first aid kit, warning triangle, high-visibility vest)
Rights and obligations of the parties
The agreement should clearly define the rights and obligations of each party. The employee’s obligations include:
- Using the vehicle in line with its intended purpose and the law
- Taking care of the vehicle’s technical condition and cleanliness
- Carrying out regular inspections and maintenance
- Reporting breakdowns and damage without delay
- Securing the vehicle against theft and vandalism
- Keeping a log of journeys in line with tax requirements
The employer undertakes to provide suitable conditions for storing the vehicle safely and to cover the cost of insurance and necessary repairs. The employee is entitled to reimbursement of justified costs related to using the company vehicle
The employee’s rights may include:
- Using the vehicle for business purposes
- Reimbursement of fuel costs and road tolls
- Access to an authorised service centre in the event of a breakdown
- Limited private use (if provided for)
Practical aspects and fleet management
Effective management of a company vehicle fleet requires a comprehensive system covering not only entrustment agreements but also operational and control procedures. Employers should consider creating internal policies and procedures supporting the process of entrusting vehicles.
Monitoring and control system
Modern fleet management may include:
- GPS systems for monitoring locations and routes
- Fuel cards limiting the scope for misuse
- Regular technical inspections and checks of vehicle condition
- Safe driving training for employees
- Procedures for responding to accidents and breakdowns
Introducing a GPS monitoring system can significantly reduce the risk of company vehicles being misused. Such a system allows you to track vehicle locations on an ongoing basis and verify the business purpose of journeys
Checks on the use of company vehicles should be regular and systematic. They may include:
- Monthly reports on vehicle use
- Random checks of technical condition and cleanliness
- Comparing the journey log with GPS data
- Analysing the running costs of individual vehicles
- Assessing whether continued entrustment of the vehicle is justified
Insurance and risk management
Appropriate insurance for company vehicles is a key element of risk management. Employers should consider:
- OC insurance with increased liability limits
- AC (autocasco) insurance with a low excess
- Assistance insurance providing roadside help
- Personal accident insurance for drivers
- Legal protection insurance for motoring matters
A construction company with a fleet of 50 vehicles introduced a comprehensive management system including entrustment agreements, GPS monitoring and fuel cards. As a result, it managed to reduce running costs and limit cases of company vehicles being misused. The system also made it possible to optimise routes and plan the work of mobile teams better.
