VAT and PIT cash methods - how do they differ?

Service-Tax

The cash method can be distinguished both in terms of income tax and VAT. However, they are not the same, and there are considerable differences between them. Taxpayers who keep the KPiR can record costs using the cash method (also known as the simplified) or the accrual method. When deciding on one of them, the entrepreneur should consistently follow the rules of a given method. It is not possible to combine these methods of accounting. However, when it comes to VAT, the cash method is intended for the so-called small taxpayers.

What is the cash method in income tax?

According to the cash method, the tax liability arises when the cost arises. The day when the cost arises is generally considered to be the date of issuing the document (e.g. invoice). Therefore, costs should be recognized on the date they are incurred. No matter what period they refer to.

However, it should be remembered that only small taxpayers who are considered to be entrepreneurs whose sales revenues in the previous tax year did not exceed the amount corresponding to the equivalent of EUR 1,200,000 have the right to settle this method.

These taxpayers are entitled to:

  • paying quarterly income tax advances;

  • making one-off depreciation write-offs under de minimis aid on the initial value of fixed assets (excluding passenger cars).

Checkout method in VAT

The timing of VAT settlement when using the cash settlement method is primarily determined by the moment of payment of the receivables.

Cash method and output VAT

The moment when the tax obligation arises depends on the receipt of the payment (or its part) from the contractor, subject to:

  • sale for an active VAT taxpayer - the tax obligation arises on the date of receipt of all or part of the payment;

  • sale for an inactive VAT payer (e.g. an entity exempt from VAT, a private person) - the tax obligation arises on the day of receiving all or part of the payment, but not later than on the 180th day of the delivery of the goods or the performance of the service.

Input VAT and tax obligation on the cash basis

If you choose the cash method, when settling the input VAT on purchases, it is possible to settle it in the quarter in which all or part of the receivable resulting from the invoice was paid.

If VAT has not been deducted in the declaration for the quarter in which the payment (or part of it) was settled, the taxpayer has the right to deduct this tax in one of the next two accounting periods.

Choice of the VAT checkout method

In order to settle VAT with the cash method, this fact must be reported to the tax office. The application is made on the VAT-R form.