Among the changes announced in the Prime Minister's exposition were the introduction of the so-called cash PIT for entrepreneurs. The draft Act amending the Act on Income Tax on Individuals and the Act on Flat-rate Income Tax on certain revenues of individuals prepared by the Ministry of Finance is a manifestation of the implementation of the announcements made.
The PIT is intended to be able to select a cash accounting method for both revenue and revenue costs by some entrepreneurs. This means that tax payers will in principle be required to pay the tax only when they are paid for the invoice issued.
It should be recalled that in the current state of the law, the amounts due, even if they are not actually received, are considered to be revenue when the value of the returned goods, the discounts and the accounts granted are excluded.
The date of origin of the revenue is essentially the day of issue of the goods, sale of the property right or performance of the service, or partial performance of the service, no later than the date of issue of the invoice or payment of the dues.
The income is now generated regardless of whether the entrepreneur has already received payment. The accrual method of determining business income described above is applicable to the method of determining the cost of obtaining income.
The solution mitigating current tax regulations is the so-called relief for bad debts, which is a sign of countering the negative effects of so-called payment congestion on the entrepreneur.
In order to avoid the need to pay tax despite not receiving payment from a counterparty, the taxable person may reduce the basis for calculating the tax by the value of the claim which has not been settled or disposed of within the time limit 90 days from the date of expiry of the payment deadline indicated on the invoice.
The disadvantage of this solution is the need to meet the condition of expiry 90 the days, in advance, the taxable person shall indicate the income, only after the expiry of that period shall he be entitled to correct it. In addition, every entrepreneur will not benefit from relief for bad debts.
The cash-flow method allows for the adoption of the income for the day of settlement of receivables, but not later than after the expiry of the 2 years from the date of issue of the invoice or the date of liquidation of the business activity. Importantly, it should also be understood that it is partly regulated, including for supplies of goods and services to be performed in the following reporting periods.
The spot method refers only to transactions in B2B, and thus to transactions between traders, with certain entity exemptions, concerning inter alia related entities. Importantly, the PIT cashier will only deal with invoiced transactions.
The bill provides for the possibility of certain taxpayers, especially smaller entrepreneurs, to choose the settlement of revenues according to the cash method. It is necessary to fulfil several conditions – the new solution concerns taxpayers (including start-ups) who generate income from economic activity:
self-run (right to the PIT cash register will not be granted to persons conducting business activities, e.g. in the form of a civil partnership or a public company);
in the amount not exceeding in the year immediately preceding the tax year the amount corresponding to the equivalent 250,000 EUR ( converted into gold at the average euro rate announced by the NBP on the first working day of October of the year preceding the tax year). In the case of an enterprise, the income from the business activity carried out by the deceased entrepreneur is also included.
A taxpayer wishing to use this method must not keep accounts and must also submit a written declaration to the Chief of the Tax Office on the choice of this method. The time limit for submission of the statement is essentially up to 20 February tax year. With regard to taxable persons who only start their business during the tax year, the power to make a statement will have to 20. on the day of the month following the start of business or until the end of the tax year (for start-ups in December).
The amendment also provides for a cash-based method of deducting the cost of obtaining income – taxpayers applying the PIT settlement method will deduct the costs in the tax year in which the charge was settled no earlier than the date on which the cost was incurred.
Costs must result from transactions between the taxpayer and another entrepreneur. The exception to the way revenue costs are deducted will be depreciation off fixed assets and intangible assets, which will be included in the costs under the present rules.
Among the obligations of taxable persons who choose this method will be the need to keep records of invoices documenting revenue cleared by this method. Entrepreneurs will be required to document the dates of issue of invoices and their numbers, the amount of payment resulting from the invoice and the date of payment.
PIT can be a facilitation for entrepreneurs having an impact on their liquidity, but it also has a few drawbacks.
First of all, it should be borne in mind that not everyone will be able to use this method and therefore it will be necessary to closely monitor both the amount of income generated from their business activity and the fulfilment of other conditions, including the status of the trader on the part of the counterparty.
Furthermore, the Act imposes on taxpayers the registration obligations necessary to comply with this method of accounting.
Admissibility of applying the spot method only for B2B transactions may give rise to difficulties in distinguishing the costs incurred by the entrepreneur in obtaining income from these transactions and excluding non-trade counterparties.
The legislator leaves taxpayers a choice in the use of the cash-flow method, which is optional and depends on making a declaration to the Chief of the Tax Office.