Subsidy in the Tax Book of Income and Expenses
When starting a business, entrepreneurs often use various types of financial support, such as credits, loans or subsidies. Correct settlement of the latter causes many difficulties for taxpayers. The regulations on this matter, often complicated and incomprehensible, cause problems in their interpretation. Check how the received subsidy should be settled!
Is the received grant income?
According to Art. 14 sec. 2 point 2 of the Personal Income Tax Act, income from business activity also includes subsidies, subsidies, subsidies and other free benefits received to cover costs or as a reimbursement of expenses, except when these revenues are related to the receipt, purchase or production of the scope of fixed assets or intangible assets, from which depreciation write-offs are made.
It is worth emphasizing that in most cases subsidies constitute tax-exempt income, as stated in Art. 21 of the Act:
"Article 21 (1). The following are free from income tax: (...)
121) one-time measures granted to the unemployed to take up the activities referred to in article 1. 46 sec. 1 point 2 of the Act of 20 April 2004 on employment promotion and labor market institutions; (...)
129) subsidies, within the meaning of the provisions on public finances, received from the state budget or the budgets of local government units, subject to para. 36; (...)
136) payments for the implementation of projects under the programs financed with the participation of European funds, received from Bank Gospodarstwa Krajowego, with the exception of payments received by contractors;
137) funds received by a project participant as aid granted under a program financed with the participation of European funds, referred to in the Act of 27 August 2009 on public finances (Journal of Laws of 2015, item 1865 and of 2016 r. item 1250) ".
Subsidy in the book of income and expense?
In economic practice, there are two ways of recognizing the received subsidy in the tax book of revenues and expenses. The ledger is a record which, as a rule, should include those transactions that have tax consequences. If the economic events that have occurred are not relevant to the personal income tax, as a rule, they should not be disclosed in the KPiR.
As follows from the explanations for bookkeeping, revenues should be reported in column 7 - sale of goods or services, and in column 8 - other revenues, i.e. those that do not result from the main profile of the company's activity, e.g. bank interest, revenue from the sale of a fixed asset, etc. .
Therefore, the entrepreneur's income exempt from taxation should certainly not be shown in column 7 or in column 8 of the book, as they include only those that are subject to PIT taxation.
In general, in line with the first method used by practitioners, the subsidy received should not be included in the KPiR. They explain this by the fact that it has no influence on the tax, and therefore on the advance payment calculated and paid by the entrepreneur.
However, in a situation where the taxpayer wants to show the received subsidy in the book, the appropriate column will be column 17, which is used to recognize comments. This part of the table is generally neutral and has no de facto impact on the tax liability.As it results from the explanations to the tax book of revenues and expenses, column 17 is intended for entering comments as to the content of entries in columns 2-16. It can also be used, for example, to enter collected advances, turnover of returnable packaging. This column may also record the value of revenues actually received by the taxpayer. These include, for example, subsidies. However, as it results from the regulations, the revenues actually received by the entrepreneur may or may not be included in it.
As a rule, the decision to include the income (subsidy) in the ledger rests with the taxpayer himself. It is worth emphasizing here that even in a situation where the entrepreneur does not show the received subsidy in the KPiR, he is obliged to store all related documentation.
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Purchase of fixed assets and intangible assets financed with a subsidy
In the case of financing the purchase of fixed assets and intangible assets with a subsidy, taxpayers are not entitled to include depreciation charges as tax costs. It results directly from Art. 23 sec. 1 point 45 of the PIT Act:
“Write-offs for the consumption of fixed assets and intangible assets made, according to the principles set out in Art. 22a-22o, from that part of their value, which corresponds to the expenses incurred for the acquisition or production of these funds or intangible assets, deducted from the tax base with income tax or returned to the taxpayer in any form.”
In the event that the purchase of a fixed asset or intangible assets was only partially financed with a subsidy, depreciation write-offs may constitute a tax deductible cost, but only to the part that was settled with the entrepreneur's own funds.
Nevertheless, the entrepreneur must enter the purchased fixed asset or intangible assets into the records, prepare an OT document - acceptance of the fixed asset for use and depreciation plan.
Depreciation write-offs that are not tax deductible costs are not included in the KPiR.
Settlement of subsidies - other expenses
Pursuant to Art. 23 sec. 1 point 56 of the PIT Act: “ It is not considered to be the cost of obtaining income, expenses and costs directly financed from the income (income) referred to in article 1. 21 sec. 1 points 46, 47a, 47d, 116, 122, 129, 136 and 137 ”.
As a consequence, the aforementioned provision means that the entrepreneur has no right to recognize this type of expenses as tax deductible costs.
On a closer look, Art. 21 sec. 1 point 121 of the PIT Act. Therefore, the expenses financed with one-off funds granted to the unemployed to start an activity from the Labor Fund may be classified by the taxpayer as tax deductible costs. However, it should be remembered that in the case of the purchase of fixed assets and intangible assets, depreciation write-offs, as previously mentioned, will not constitute a tax cost.
Expenditure covered by a subsidy in the KPiR
The following columns are used to recognize costs in the Tax Book of Income and Expenses:
- 10 - purchase of goods and basic materials,
- 11 - purchase side costs,
- 12 - remuneration in cash and in kind, and
- 13 - other expenses.
In a situation where the expenditure financed with a subsidy does not constitute a tax deductible cost pursuant to Art. 23 sec. 1 point 56 of the Act, it would be incorrect to include it in one of the above columns. In this case, the taxpayer may do the same as in the case of revenues and show the cost in column 17 of the book - comments, or not include it at all in the KPiR.
On the other hand, when the expenses (except for ŚT and WNiP) were financed with the funds referred to in Art. 21 sec. 1 point 121 of the PIT Act, they should be recorded in the appropriate column of the book, because they constitute a cost and allow to reduce the tax liability of the entrepreneur.
A subsidy from PUP and the need to refund VAT
The obligation to refund the deducted or refunded VAT in the case of funds received from the employment office results from § 4 para. 3 point 5 of the Regulation of the Minister of Family, Labor and Social Policy of 14 July 2017 on the reimbursement of costs of equipment or retrofitting of a workplace from the Labor Fund and granting funds for starting a business.
Therefore, most taxpayers do not want to take advantage of the right to deduct VAT from invoices documenting the purchase of goods and services under the granted co-financing. Is it then possible to include the expenditure financed with a subsidy in the gross amount or in the net amount from the invoice as a possible tax expense in the tax revenue and expense ledger?
Well, as it results from Art. 23 sec. 1 point 43 of the PIT Act is not included in the tax deductible costs of the value added tax (VAT), with some exceptions that do not apply in this situation. Therefore, if the taxpayer will be able to include the expenditure financed with the subsidy in costs, then the appropriate, as a rule, the net amount from the purchase invoice will be appropriate.
Subsidy in the wFirma.pl system
As a rule, the subsidy constitutes tax-free income and therefore is not subject to accounting.
Fixed assets and intangible assets (i.e. with a value exceeding PLN 10,000 that are planned to be used in the company for a period longer than a year) financed from the subsidy may not constitute tax deductible costs. However, the entrepreneur should depreciate such a component (the depreciation, however, will not be included in tax costs).
Other grant-financed expenditure is also not generally a tax charge, with an exception to the general rule. If the other components (not constituting fixed assets or intangible assets) have been financed with a subsidy granted from the Labor Fund pursuant to Art. 46 sec. 1 point 2 of the Act on employment promotion and labor market institutions, the entrepreneur will generally be able to include them in the costs.
Therefore, if the received subsidy is the one that allows the inclusion of expenses in costs, you should first specify the nature of the expenses incurred, broken down into:
- fixed assets and intangible assets, and
- the remaining.
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If purchases financed with a subsidy are included in fixed assets, despite the fact that they are not tax deductible costs, they should be entered into the system in the EXPENDITURE tab »ADD» VAT INVOICE »FIXED ASSET» PURCHASE OF FIXED ASSETS. When entering the FA, it is absolutely necessary to uncheck the box with the automatic booking of write-offs.
On the other hand, when the purchases concern other expenses (the type of the granted subsidy allows the expense to be included in the costs), they are entered into the system in the EXPENDITURE »ADD» VAT INVOICE tab - the answer is the type of expenditure, eg OTHER EXPENDITURE RELATED TO BUSINESS ACTIVITY.