Split payment from Sunday

PMR team

July 2, 2018

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The Fiscal encourages the use of split payment with the promise of faster VAT refunds, but if taxpayers choose to do so, it is more likely for a different reason.

Company A, which settles using the split payment system, pays company B for a service with a net amount of PLN 10,000 plus PLN 2,300 in value added tax (VAT). Although the latter does not use this mechanism, the money goes separately to its two bank accounts - current and VAT. In such a situation, entrepreneur B, paying for an invoice to another contractor (C), e.g. PLN 1 thousand net plus PLN 230 VAT, has to cover the receivable and the tax from the current account, even though his VAT sub-account is not empty. If B joins the system, he will be able to pay these dues from both accounts. This is an example of the practical effects of the new regulations, effective from next Sunday, presented by PMR Restructuring specialists.

The Ministry of Finance reminds that the split payment mechanism (MPP), which comes into force on 1 July and was introduced by an amendment to the VAT Act, is voluntary. It is up to the entrepreneur to decide which invoice he will pay under this system, as well as in what proportion and to which supplier. He hints that the provisions as to how he is to be paid can be set out in mutual contracts. Indeed, it is up to the purchaser, i.e. the payer, to decide on the application of the MPP, which consists in the fact that from the gross value paid to the seller, the bank will automatically collect the tax into a separate VAT account (linked to the settlement account). From this source, the company will pay VAT in settlements with contractors and the tax authorities. In order to make other transactions from the sub-account, it will have to ask the tax office for permission to transfer money from there to the main account it uses to conduct its business. Some entrepreneurs are concerned that such a request may involve a tax audit.

Therefore, lower amounts will be credited to the regular accounts and, if the vendor himself does not apply MPP to his own suppliers, he will have to send them both the net amount and the VAT from the current account. At the same time, overpayments will start to accumulate in the VAT sub-account, which cannot be freely traded.

Małgorzata Anisimowicz, president of PMR Restrukturyzacje, points out that the tax office encourages micro, small and medium-sized companies to a faster transition to the split payment system, declaring a more efficient refund of overpaid VAT (within 25 days, not 60), but at the same time it forces changes from above. When one taxpayer uses the split payment, the VAT from him sent to another company will be blocked on the sub-account, which may mean for company problems financial.

– Split payment will increase the transparency of money flow, transactions and is a good, long-term solution. However, in companies that currently use amounts corresponding to VAT for current expenses, e.g. salary payments or store supplies, there will be a problem with liquidity. This applies especially to those that have so far settled their taxes on a quarterly basis, and companies in worse condition, in arrears with paying VAT to the tax office - says Małgorzata Anisimowicz.