What are the risks of making money without starting a business?
Earning money without starting a business, contrary to what it may seem, is not a rare phenomenon at all. Bloggers who earn money on their blogs, people selling at online auctions, such as Allegro, and sometimes even tutors providing additional classes or fitness trainers - are entrepreneurs in the eyes of officials and, consequently, are obliged to set up a business. Failure to comply with the registration and tax obligations may result in financial penalties and, at the same time, deprive the entrepreneur of privileges, such as, for example, tax reliefs.
Definition of economic activity
The definitions of economic activity are included in the provisions of the following acts:
the business constitution, and more specifically in the Entrepreneurs' Law Act,
the Income Tax Act,
the act on tax on goods and services,
the Social Insurance Act.
The basic definition on which the definitions contained in the provisions of other acts are based is contained in the Entrepreneurs' Law.
Art. 3 of the Entrepreneurs' Law
An economic activity is an organized gainful activity, performed on its own behalf and on a continuous basis.
Taking into account the above definition and other definitions contained in the other indicated acts, it is possible to distinguish the characteristics of an activity recognized under the law as an economic activity:
performing on one's own behalf,
Until the entry into force of the Business Constitution. for this purpose.
No company registration in CEIDG
The condition for undertaking legal business activity is reporting its performance to CEIDG. Failure to register under criminal law is an offense. Anyone who carries out an economic activity without the required notification to the business register is subject to a fine or restriction of liberty. However, there is an exception to this rule:
Art. 5 Entrepreneurs' Law
"The activity performed by a natural person, the income due from this activity of which does not exceed 50% of the minimum wage in any month (...)" is not an economic activity.
This means that if the income in a given month does not exceed PLN 1050, the activity does not need to be registered in CEIDG. Such an obligation will arise when the income exceeds the aforementioned limit, because this activity becomes an economic activity, starting from the day on which half of the minimum wage was exceeded. In a given case, a person conducting business activity should submit an application for entry in the Central Register and Information on Economic Activity within 7 days from the date on which the said amount was exceeded.
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Earning without starting a business and income tax
When income did not exceed half of the minimum wage in a month and people decided not to register such activity as a business - the given income should be accounted for in the annual PIT tax return.
In the remaining scope - in accordance with the general rule, each income should be taxed, not only the source of economic activity, but if the tax authorities, as a result of an audit, decide that a given person should register their activity, it will result in the obligation to pay monthly tax advances. profitable. Unpaid advances are subject to obligatory payment with interest.
On the other hand, the consequences of omitting the income from transactions related to unregistered economic activity in the annual tax return are severe both under tax and criminal law. The Income Tax Act in Art. 25b from individuals defines such income as "undisclosed income", without giving a specific definition, but providing some guidelines for recognizing income as such:
income not covered by disclosed sources, including income from sources indicated by the taxpayer, disclosed in an incorrect amount;
income from undisclosed sources, including income from sources not indicated by the taxpayer and not determined by the tax authority or tax inspection authority
in the amount corresponding to the surplus of the expenditure over the taxed or untaxed income obtained before the expenditure was incurred.
If, as a result of the audit procedure, the tax authorities prove the existence of income from undisclosed or illegal sources, and the controlled person does not have evidence of the existence of a given source of income due to earning without establishing a business, he will have to take into account the penalty tax rate. Under criminal law, such a person may be punished with a fine, restriction or even imprisonment.
Earning without setting up a business, VAT arrears and not submitting VAT returns
VAT arrears will arise for a person earning money without setting up a business, when they exceed the sales limit during the year, unless they perform an activity that requires registration as a VAT payer - then the arrears will arise without exceeding the indicated limit. Earning without setting up a company on the basis of VAT will therefore result in the obligation to pay the outstanding VAT together with interest. In addition to interest, such a person may be fined for not submitting a VAT declaration.
Non-payment of social security contributions
A person legally running a business must also register with the Social Insurance Institution. Due to registration with ZUS, the entrepreneur is obliged to pay health and social contributions. Failure to pay health and social contributions may result in a fine of up to PLN 5,000 and the obligation to pay overdue contributions. Additionally, pursuant to the provisions of the Act on the social insurance system, a person who does not pay ZUS contributions may be punished with an additional fee of up to 100% of unpaid contributions.
Art. 18 of the Entrepreneurs' Law states that an entrepreneur starting a business activity for the first time does not have to pay social contributions (retirement, disability, sickness) for the first 6 months of running a business.
Earning money without starting a business and not issuing invoices and not keeping accounting
The regulations impose on all entrepreneurs (entered into CEIDG, KRS) the need to document income by issuing invoices, obligatorily in the case of transactions with legal persons, as well as at the request of a natural person. Failure to issue invoices in the case of earning without setting up a business, when we meet the conditions to register the business, is a tax offense, for which there is a risk of high fines. The same sanction may result in failure to keep accounts.
Earning without starting a business - no possibility of taking advantage of privileges
Running a business is not only the obligations related to income tax, VAT and others discussed in the article. Registering a business activity allows you to take advantage of the following facilities:
cost settlement, thanks to which the entrepreneur reduces the income tax,
developing activities by establishing cooperation with other entrepreneurs,
the right to deduct VAT,
recognition of expenses in costs,
- the possibility of applying for grants for the company's activities.