Cost adjustment - no more cost reduction by unpaid expenses

Service-Tax

The cost adjustment introduced in 2013 in connection with the failure to pay the expenses on time will be forgotten after 3 years. The law amending the regulations, which provided both entrepreneurs and accountants with a lot of additional and tedious work, was signed by the president.

Cost correction - what is it about?

Amendments to the Income Tax Act, which entered into force on January 1, 2013, limit the possibility of recognizing unpaid expenses as tax deductible costs. Currently, the entrepreneur is obliged to reduce the tax deductible costs in the KPiR by the amount resulting from unpaid expenses. The cost adjustment should be made:

  • for expenditure with a payment term shorter than 60 days - in the period which expires 30 days after the payment date specified in the invoice;

  • for expenses with a payment term longer than 60 days - in the period in which the 90 day elapses from the date the expense is recognized in costs (even if the payment date has not yet expired).

If the expense is not paid, after exceeding the statutory deadline, the entrepreneur is obliged to reduce the tax deductible costs by the amount resulting from unpaid and previously booked expenses. Additionally, when there were no costs to reduce them in a given period, income had to be increased.

Cost correction - changes to the law canceling the correction related to unpaid expenses

The act signed by the president on 5 August 2015 amending the act - Tax Ordinance and some other acts repeals art. 24d. Therefore, from January 1, 2016, it will not be necessary to reduce the costs by unpaid expenses within the statutory period. However, this does not mean that you can forget about settling payments related to expenses. Taxpayers must know that the limitation period in taxes is 5 years. Therefore, the tax authorities may still inspect the books for 2013, 2014 and 2015 for the following years (despite the change in regulations) - in their case, the cost adjustment was in force.

Cost adjustment - transitional provisions for unpaid expenses

The legislator provided for a reference to the transitional period in the regulations. If, by the end of December 2015, the taxpayer will be or will be obliged to reduce the costs by unpaid expenses within the statutory deadline, after paying them in 2016, they will be able to re-classify them as tax deductible expenses.

Example 1.

On November 14, 2015, an entrepreneur bought a computer. The invoice was issued with the date:

  • date of issue: November 14, 2015
  • date of sale: 14/11/2015
  • payment term: 14 days (until November 28, 2015)

The invoice was paid on January 14, 2016.

As the payment deadline is shorter than 60 days and the 30th day after the due date falls in December 2015, in December it will be necessary to adjust the costs by the value (net in the case of active VAT payers) of the unpaid invoice for the purchase of a laptop. Then, due to the fact that the payment was made in January, it is during this period that the taxpayer will again include in the costs the invoice for the purchase of the laptop.

Example 2.

In October (10/10/2015) the entrepreneur purchased material for the service. The seller specified on the invoice:

  • date of issue: 10.10.2015
  • sale date: 10/10/2015
  • payment term: 4 months (February 10, 2016)

As the statutory deadline for the correction of costs (i.e. 90 days from the date of issuing the invoice-recognition in tax costs) would fall in January 2016, the entrepreneur is not obliged to reduce costs due to the change in regulations (Article 24d has been repealed).