Erroneous payment of the contractor to the bank account and income from activity

Service-Tax

Let's assume a situation in which a contractor completely by mistake makes a double payment for an issued invoice documenting the sale of goods or services. The seller, on the other hand, realized about the incident only a month later and immediately refunded the overpayment. However, a question arises whether the amount received again in the period when it is credited to the bank account constitutes income from activity and should it be taxed? Well, it turns out not.

Business income

An important aspect in the discussed topic is the understanding of what economic events trigger the generation of income under the Personal Income Tax Act. Pursuant to Art. 14 sec. 1 of the Act, the income from business activity is the amounts due, even if they were not actually received, with the exception of:

  • the value of the returned goods, discounts and discounts granted, and
  • due tax on goods and services, in the case of entrepreneurs making sales subject to VAT.

The date on which the revenue arises is the date on which the item is delivered, the property right is sold or the service is provided, or the service is partially performed, not later than on:

  • issuing an invoice or
  • payment of receivables.

Apart from the above definition, the legislator in Art. 14 sec. 2 also included a catalog of economic events that constitute operating revenues, including:

  • exchange differences,
  • received contractual penalties,
  • interest on funds in bank accounts maintained in connection with the activity performed,
  • subsidies, subsidies, subsidies and other free benefits received to cover costs,
  • rental, sublet and lease revenues.

However, the above catalog does not include the provision that the amount received by mistake from the contractor - double payment for the same invoice - constitutes income. In addition, the taxpayer should not recognize the overpayment as income due, because the payment was received accidentally, covering the liability that did not actually occur (the invoice was settled with the previous payment).

Payment in error does not constitute income

The above considerations on recognizing the amount of the counterparty's undue payment as an event not constituting revenue were confirmed in the individual interpretation of the Director of the Tax Chamber in Łódź of June 25, 2013 (No.IPTPB1 / 415-211 / 13-2 / DS).

In the case at hand, the applicant received a payment to a bank account from the contractor, which concerned a debt that had already been settled. When the applicant became aware of the payment, he had no contact with the contractor and was not sure if the entity still existed. In connection with the above, he showed income from undue payment on the day of its receipt. However, the tax authority decided that the taxpayer's conduct was incorrect because "The payment (...) was in the nature of an undue payment, it was made without a basis, by the contractor who was not obliged to pay it."

Therefore, taxpayers who received undue payment by mistake should return it without tax consequences. This amount does not constitute income from business activity and thus its return will not result in an adjustment of these revenues.