Business owners often face a dilemma about how to account for VAT correctly when scrapping company vehicles. The situation is particularly complicated for fixed assets acquired without the right to deduct VAT, i.e. on the basis of a sale agreement (umowa kupna-sprzedaży) or a margin scheme invoice (faktura VAT-MARŻA). After years of using such a vehicle in the business, when it is no longer fit for further use, the question arises of what tax obligations come with handing it over for scrap.
This issue is especially important in the light of the case law of the Court of Justice of the European Union on consideration and the rulings of the tax authorities, according to which handing over a vehicle for scrap for consideration is a supply of goods for consideration subject to VAT. Regardless of whether you had the right to deduct VAT when acquiring the fixed asset, scrapping it later will have tax consequences.
Scrapping a motor vehicle that is a fixed asset in a business is subject to VAT as a supply of goods for consideration. It does not matter that the active VAT payer acquired the vehicle without the right to deduct VAT on the basis of a sale agreement or a margin scheme invoice (faktura VAT-MARŻA)
What fixed assets are in a business
Classifying assets as fixed assets requires meeting certain legal criteria. Under the PIT Act (personal income tax), an asset is treated as a fixed asset if it meets several basic requirements at the same time.
The criteria for classifying fixed assets include the following:
- The taxpayer owns or co-owns the asset
- The asset is complete and fit for use as intended
- The asset is used in the taxpayer's business
- The expected period of use is longer than 12 months
- The asset falls into the categories listed in the tax act
The first criterion is ownership or co-ownership by the taxpayer. The asset must belong to the business owner or be co-owned by them, which means holding certain rights to it. The next requirement is completeness and fitness for use – the asset must be in a technical condition that allows it to be used as intended.
The third important criterion is that the asset is used in the taxpayer's business. This may include direct use in business processes or making it available to others under lease, tenancy or rental agreements. The last, but no less important, requirement is the expected period of use of the asset in the business, which must be longer than 12 months.
In Article 22a of the Act of 26 July 1991 on personal income tax, the legislator sets out the list of assets that are fixed assets. It covers structures, buildings and premises that are separate property, machinery, equipment and means of transport, as well as improvements to third-party fixed assets that have been put into use
The list of fixed assets covers the following categories of assets:
- Structures, buildings and premises that are separate property
- Machinery, equipment and means of transport
- Improvements to third-party fixed assets that have been put into use
- Assets built on someone else's land
- Third-party assets used under lease agreements
- Other items that meet the statutory criteria
Fixed assets also include buildings and structures built on someone else's land and third-party assets that the taxpayer does not own or co-own but uses for business purposes under a lease agreement. The condition, however, is that the depreciation write-offs are made by the user of these assets.
The list of fixed assets is not closed, as it also covers other items, provided they have all the characteristics of this category of assets listed above. This means that even unusual assets can be classified as fixed assets if they meet the statutory criteria.
Legal basis for VAT on scrapping
An analysis of the VAT Act points to a clear answer on whether scrapping fixed assets is subject to VAT. Under Article 2 point 22 of the Act of 11 March 2004 on tax on goods and services, a sale means a supply of goods and a provision of services for consideration within the country, export of goods and intra-Community supply of goods.
Article 5(1) point 1 of the VAT Act specifies that VAT applies to the supply of goods and the provision of services for consideration within the country. Under this act, goods are things and their parts, as well as all forms of energy. A supply of goods, in turn, means the transfer of the right to dispose of them as an owner, where the transaction is made for consideration.
The case law of the Court of Justice is crucial to understanding the concept of consideration. In its judgment of 3 March 1994 (case C-16/93), the Court noted that an activity is taxable only if there is a legal relationship between the provider and the recipient of the service under which there is reciprocal performance, with the remuneration received by the provider being the value actually given in return for the services supplied to the recipient.
A supply of goods or provision of services for consideration occurs when there is a direct link between it and the payment. Payment for a supply of goods for consideration can take various forms – not only money but also goods in kind
The Director of National Tax Information (KIS), in an individual tax ruling of 2 August 2021 (ref. 0114-KDIP4-3.4012.256.2021.2.DM), concerning the transfer to a dismantling station of vehicles removed from the road by a district authority (powiat), stressed that the question of consideration has been examined many times by the Court of Justice of the European Union. In judgment 102/86, the Court noted that an activity can be considered to have been carried out for consideration when there is a direct and clearly identifiable benefit for the supplier of the goods or services, and when the payment for the performance received is directly linked to the activity that would be subject to this tax.
Scrapping a vehicle as a supply for consideration
Handing over a vehicle to a dismantling station (stacja demontażu) is usually done for consideration, which means that the business owner receives a certain financial benefit in return for the vehicle. This may be a direct cash payment or another reciprocal performance with a measurable economic value. In practice, the dismantling station pays for the vehicle it accepts, and the supply is documented with a VAT invoice issued by the business owner as the supplier (or by the station on the owner's behalf, if the parties have agreed on self-billing).
Scrapping a vehicle requires following certain legal and administrative procedures. You need to prepare the relevant documents, including the vehicle registration certificate (dowód rejestracyjny) and documents confirming ownership. After accepting the vehicle, the dismantling station issues a certificate of acceptance and carries out the dismantling and disposal activities required by law.
The vehicle scrapping procedure includes the following steps:
- Preparing the vehicle documents and the registration certificate
- Choosing an authorised vehicle dismantling station
- Handing over the vehicle together with the full set of documents
- Receiving a certificate confirming that the vehicle has been accepted for dismantling
- Issue of a VAT invoice by the business owner (or by the dismantling station under self-billing)
- Accounting for the scrapping in the tax records
An important part of the procedure is documenting the whole operation properly for tax and accounting purposes. You must keep all documents relating to the scrapping of the vehicle, as they form the basis for settling VAT and making the appropriate entries in the accounting books.
For an activity to be treated as made for consideration, it is enough that a price expressed in money can be determined for the reciprocal performance that constitutes remuneration for that activity. Consideration also includes receiving shares in a company or other financial benefits with a measurable value
VAT where there was no right to deduct
Active VAT payers who bought a motor vehicle on the basis of a sale agreement or a margin scheme invoice (faktura VAT-MARŻA) and entered it in the company's fixed assets must expect certain tax consequences when they later scrap it. The way the vehicle was acquired has a significant impact on the business owner's tax rights and obligations while it is in use.
While a car is used in the business, it is usually intended for making sales subject to VAT. How the vehicle is used depends on the specifics of the taxpayer's business and the nature of the business tasks performed. Passenger cars or motor vehicles that do not meet the statutory requirements for full VAT deduction may be used exclusively for business or in a mixed way, covering both business and private purposes. When the car is no longer needed, selling a company car and its tax consequences also come into play.
Regardless of how it is used, the motor vehicle serves to make sales subject to VAT, which means that an active VAT payer has the right to deduct VAT on running costs relating to the vehicle – in full or, for a passenger car also used for private purposes, at 50% (Article 86a(1) of the VAT Act). This covers fuel, repairs, servicing, insurance and various fees related to using the vehicle in the business.
| Type of acquisition | Right to deduct VAT | Consequences on scrapping | Documentation |
|---|---|---|---|
| Sale agreement | None | VAT must be charged | Agreement, registration certificate |
| Margin scheme invoice (faktura VAT-MARŻA) | None | VAT must be charged | Margin scheme invoice |
| Standard VAT invoice | Full right (passenger car also used privately: 50%) | VAT must be charged | VAT invoice |
| Operating lease | On lease instalments: 50% or 100% | The vehicle is not the lessee's fixed asset – it is scrapped by the owner (the lessor) | Lease agreement |
After a few years of use, when the motor vehicle is no longer fit for further use, business owners consider how to dispose of it. This may be selling the fixed asset to another entity, withdrawing it from the business or, as a last resort, scrapping it. For vehicles in poor technical condition, handing them over for scrap is often the only reasonable option.
Handing over a car for scrap is subject to VAT regardless of how it was acquired. It does not matter that the active VAT payer acquired the motor vehicle without the right to deduct VAT on the basis of a sale agreement or a margin scheme invoice (faktura VAT-MARŻA)
Exceptions to VAT on scrapping
The VAT Act provides certain exceptions to the general rule that scrapping fixed assets is subject to VAT. The key provision here is Article 43(1) point 2 of the VAT Act, which sets out the conditions for exempting the supply of certain goods from VAT.
The supply of goods used exclusively for VAT-exempt activities is exempt from VAT, provided that the supplier had no right to reduce output tax by input tax on the acquisition, import or production of those goods.
In practice, this exemption means that only handing over a motor vehicle used in the business exclusively for VAT-exempt sales allows you to apply the VAT exemption when scrapping it. This situation is fairly rare in business practice, but it may occur in certain circumstances.
Cases in which the exemption from VAT on scrapping applies:
- Business owners with the subjective VAT exemption (zwolnienie podmiotowe, Article 113 of the VAT Act) – their supply is exempt without the need to apply Article 43
- Taxpayers making sales with the objective VAT exemption (zwolnienie przedmiotowe) who use the vehicle exclusively for those sales
- Active VAT payers with mixed activities who use the vehicle exclusively for exempt sales
- Entities performing only the objectively exempt activities listed in Article 43(1) of the VAT Act
The first case concerns business owners who are subjectively exempt from VAT. These are entities whose sales in a calendar year do not exceed the limit of PLN 240,000 (from 1 January 2026; previously PLN 200,000). For such entities, the supply of the vehicle is covered by the subjective exemption, and the sale of a depreciable fixed asset is not counted towards the limit (Article 113(2) point 3 of the VAT Act).
The second case may concern business owners making sales that are objectively exempt from VAT (Article 43(1) of the VAT Act). In such cases, the vehicle must be used exclusively for exempt activities for the exemption to apply when it is scrapped.
A business owner running only VAT-exempt educational activities bought a passenger car on the basis of a sale agreement for PLN 15,000. For five years, they used the vehicle exclusively to travel to classes and meetings with customers. After that period, the car broke down and was handed over for scrap for PLN 800. Because the vehicle was used exclusively in VAT-exempt activities, the business owner can apply the exemption on scrapping.
The third case concerns active VAT payers with mixed activities covering both taxable sales and sales that are objectively exempt from VAT. If they acquire and use a motor vehicle entirely for making objectively exempt sales, they can apply the exemption when it is scrapped.
Sales objectively exempt from VAT cover certain types of goods and services exempt from VAT under Article 43(1) of the VAT Act. Sales subjectively exempt from VAT means that business owners whose sales do not exceed the limit of PLN 240,000 per calendar year (from 1 January 2026) use the subjective exemption
Practical aspects of accounting for scrapping
Accounting for VAT on scrapping a fixed asset requires following certain accounting and tax procedures. You must document the entire operation properly and make the appropriate entries in the VAT records and accounting books. The process has several stages, each of which matters for correct tax settlement.
The first step is to document the scrapping properly. The VAT invoice documenting the supply of the vehicle for consideration is issued by the business owner, as the supplier, to the dismantling station (Article 106b(1) point 1 of the VAT Act); the station may issue it on the owner's behalf only under a prior self-billing agreement (Article 106d(1)). From 2026, invoices are issued in KSeF (National e-Invoicing System) – the obligation applied to the largest taxpayers from 1 February 2026 and to the others from 1 April 2026. The invoice should contain all elements required by law, including the parties to the transaction, a description of the goods supplied, the net value, the VAT amount and the gross value of the transaction.
The next stage is making the appropriate entries in the VAT sales register. Scrapping a vehicle is a supply of goods subject to VAT, so it must be recorded in the sales records for the period in which the supply took place. The tax point arises when the supply is made, i.e. when the vehicle is handed over to the dismantling station (Article 19a(1) of the VAT Act); if all or part of the payment was received before the supply, the tax point arises on receipt of that payment, in respect of the amount received (Article 19a(8)).
In the accounting books, you need to make the appropriate accounting entries reflecting the removal of the fixed asset from the assets and the recognition of sales revenue. This operation also affects the income tax base, as the difference between the net book value of the vehicle and the sale price obtained is taxable revenue or a tax-deductible cost.
Stages of accounting for scrapping a vehicle:
- Issuing a VAT invoice to the vehicle dismantling station (or approving an invoice issued by the station under self-billing)
- Recording the invoice in the VAT sales register
- Making accounting entries to remove the fixed asset from the books
- Recognising sales revenue in the accounting books
- Settling the difference between the book value and the sale price
- Including the operation in the VAT return for the relevant period
Another important aspect is determining the correct VAT rate for scrapping a vehicle. As a rule, this operation is subject to the standard VAT rate of 23%, unless the law provides for a reduced rate or an exemption. For motor vehicles, the standard rate usually applies.
The VAT tax point on scrapping a vehicle arises when the supply is made, i.e. when the vehicle is handed over to the buyer; it arises earlier only if payment was received before the supply (in respect of the amount received). You must include this operation in the VAT return for the period in which the tax obligation arose
Practical settlement example
Analysing a specific case helps to better understand the practical aspects of accounting for VAT on scrapping a fixed asset acquired without the right to deduct. Consider an active VAT payer running a business servicing office equipment, whose services are subject to VAT.
The business owner bought a 14-year-old passenger car for the business on the basis of a sale agreement for PLN 9,200. The vehicle was entered in the fixed asset register and used in the business for several years. Because the vehicle was used for mixed purposes, the business owner deducted 50% of the VAT on running costs.
After several years of use, the business owner found that the car was no longer fit for further use due to serious technical faults and high repair costs. Handing the vehicle over for scrap was the only reasonable option. The dismantling station offered PLN 800 gross for accepting the vehicle, which meant PLN 650.41 net and PLN 149.59 VAT at the 23% rate.
In this situation, scrapping the vehicle is subject to VAT even though the business owner had no right to deduct VAT when acquiring it. The fact that it was bought on the basis of a sale agreement does not affect the tax obligation arising on scrapping. The business owner must issue a VAT invoice documenting the supply of the vehicle and settle the output VAT in the VAT return.
An active VAT payer running a servicing business bought a used passenger car for PLN 9,200 on the basis of a sale agreement. After several years of use, the vehicle needed expensive repairs exceeding its market value. The business owner decided to hand the car over for scrap for PLN 800 gross. Even though there was no right to deduct VAT on acquisition, the scrapping is subject to VAT of PLN 149.59.
Accounting for this operation requires several entries. First, remove the fixed asset from the balance sheet at its net book value, then recognise the sales revenue and settle the output VAT. The difference between the net book value of the vehicle and the net sale price obtained will affect the company's financial result.
If, for example, the net book value of the vehicle is PLN 2,000 and the net sale price is PLN 650.41, the business owner will incur a loss of PLN 1,349.59 on this transaction, because the undepreciated value of the vehicle is a tax-deductible cost and the net sale price is revenue. At the same time, they must settle output VAT of PLN 149.59 in the VAT return for the period in which the scrapping took place. We record the liquidation of fixed assets and the related VAT settlement in the books of clients who use our accounting services.
Documentation and records
Proper documentation of the scrapping of a fixed asset is crucial for correct tax settlement and for any tax inspections. You must keep complete documentation confirming all circumstances of the scrapping and of the vehicle's earlier use in the business.
The basic document is the VAT invoice issued by the business owner who supplies the vehicle (or on their behalf by the dismantling station under self-billing). The invoice must contain all elements required by the VAT Act, including an exact description of the goods supplied, the date of issue and of supply, the net and gross values and the correct VAT rate.
In addition, you should keep documents confirming the vehicle's technical condition that justifies the decision to scrap it. These may be technical inspection reports, repair invoices, expert opinions or other documents showing that further use of the vehicle was not economically viable. Such documentation may be important during a tax inspection.
The required documentation for scrapping includes:
- VAT invoice documenting the sale of the vehicle for scrap
- Vehicle registration certificate and ownership documents
- Certificate of acceptance of the vehicle by the dismantling station
- Documents confirming the vehicle's technical condition
- Entries in the accounting books and VAT registers
- Documentation of depreciation and the vehicle's book value
The entire operation should be properly documented in the accounting records, from removing the fixed asset from the books, through recognising sales revenue, to settling VAT. Accounting entries should be clear and logically linked to the source documents so that the operation can be fully reconstructed.
Documentation of the scrapping must include the VAT invoice, documents confirming the vehicle's technical condition and the correct entries in the accounting books and VAT registers. Complete documentation is essential for correct tax settlement and to protect you against possible consequences of tax inspections
Consequences of incorrect settlement
Incorrectly accounting for VAT on scrapping a fixed asset can have serious tax and financial consequences. Tax authorities may check transactions involving fixed assets, especially whether VAT was correctly settled when they were disposed of or liquidated. Similar questions arise when a company winds up – a VAT adjustment when closing a business may then be needed.
The most common mistake is failing to charge VAT on scrapping a vehicle based on the wrong assumption that having no right to deduct VAT on acquisition also means having no tax obligation on disposal. This view is incorrect in the light of current law and case law.
The consequence of incorrect settlement may be that the authority determines the correct amount of the VAT liability and you have to pay the arrears plus late payment interest. In addition, the head of the tax office or of the customs and tax office (naczelnik urzędu skarbowego / urzędu celno-skarbowego) may impose an additional tax liability (dodatkowe zobowiązanie podatkowe) of up to 30% of the understatement, in certain cases up to 20% or up to 15%, and 100% for fictitious invoices (Articles 112b and 112c of the VAT Act), depending on the nature of the breach and the circumstances of the case.
Possible consequences of incorrect settlement:
- VAT arrears plus late payment interest
- Additional tax liability of up to 30% of the understatement (in certain cases up to 20% or 15%, 100% for fictitious invoices)
- Additional costs of inspection and appeal proceedings
- Loss of credibility with the tax authorities
- Risk of detailed inspections of other tax transactions
If you discover the error yourself, you can file a corrected VAT return (JPK_V7 – VAT return with records, SAF-T file) and pay the tax arrears plus interest. A correction filed before a tax inspection or customs and tax inspection begins, together with payment of the tax and interest, rules out an additional tax liability (Article 112b(3) point 1 of the VAT Act), while a correction with payment filed after a tax inspection ends lowers its upper limit to 20% (Article 112b(2)).
