The benefits of using split payment, i.e. the advantages of split payment

Service-Tax

Pursuant to the amendment to the Act on Value Added Tax, the split payment mechanism began to apply from 1 July 2018. This is a peculiar novelty in the Polish legal order, which additionally aims to tighten the VAT system and ensure a constant income of tax due to the state budget. In addition, the Ministry of Finance points out that the split payment mechanism is by definition a solution to ensure greater tax security, certainty of running a business and compliance with the rules of competition. The use of the split payment mechanism is currently voluntary, therefore the legislator has provided a catalog of benefits aimed at encouraging taxpayers to use this method. Therefore, learn about the benefits of using split payment.

Split payment - a split payment

The very principle of the split payment mechanism is that for the goods sold or the service provided, the seller will receive a payment from the buyer in two amounts to two separate bank accounts. The amount of net receivable affects the bank account indicated by the seller, while the amount of tax is transferred to a dedicated account intended for tax settlement purposes (VAT account), while access to funds accumulated on this account is limited. As a result, such a separation of the amount of receivables is to guarantee and ensure the inflow of tax due to the state budget.

In addition, it should be noted that split payment, as a rule, applies only to transactions between VAT payers and does not apply to taxable activities for natural persons who do not conduct business activity.Moreover, the split payment mechanism is used only when settlements are made in a non-cash form and, by definition, may apply to any receivable, regardless of the amount. The split payment mechanism is governed by the provisions of Art. 108a-108d of the VAT Act.

Benefits of using split payment

As already indicated at the beginning, the split payment mechanism is not mandatory. As a result, it is solely up to the taxpayer to decide whether he will use this institution as part of his business activity. To encourage entrepreneurs to choose the split payment, the regulations provide for certain benefits. In line with the assumptions, taxpayers are entitled to the following benefits:

  • departure from the principle of joint and several liability,

  • waiving the imposition of an additional tax liability,

  • no application of increased interest on VAT arrears,

  • accelerated refund of excess input VAT.

Departure from the principle of joint and several liability

The general rule is that the taxpayer supplying goods or services is responsible for the correct and timely payment of the output tax. However, the Value Added Tax Act provides for an exception to this rule. As Art. 105a of the VAT Act, the buyer of the goods described in Annex 13 to the Act shall be jointly and severally liable with the seller for any failure to pay the output tax.

The above principle of joint and several liability will not be applied to taxpayers who decide to use the split payment mechanism.

Not imposing an additional tax liability

In the event of irregularities in the payment of output tax or the return of the excess input tax or the amount of the excess to be transferred to the next tax period, the tax authority may impose an additional tax liability on the taxpayer in the amount of 20%, 30% or 100% of the amount of unpaid tax or an unduly shown surplus.

The benefits of using split payment in this regard are that the taxpayer will not be charged with an additional tax liability in relation to this invoice, which he has settled using the split payment mechanism.
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No application of increased interest on tax arrears

Tax Code in Art. 56b provides for an increased rate of interest on tax arrears, which is as much as 150% compared to the standard rate.

Also in this case, the taxpayer using the split payment mechanism can save himself from a burdensome regulation. However, the provision provides for the condition that in relation to the amount of tax shown in the tax return, which would then become tax arrears, at least 95% of this amount resulted from the invoices received by the taxpayer with the input tax shown on the purchase of goods and services, which were paid from using the split payment mechanism.

Expedited refund of excess input VAT

Pursuant to Art. 87 of the VAT Act, the basic deadline for returning the excess input tax over the due tax is 60 days. However, if the taxpayer uses the split payment mechanism and submits an application for the return of the surplus to the bank account intended for the payment of the output VAT, the deadline will be reduced to 25 days. The benefits of using split payment in terms of a shorter period of VAT surplus refund may become another argument that helps in making a decision to settle receivables through this mechanism.