Installment payment and obligatory cost correction

Service-Tax

In January 2013, regulations came into force, specifying obligatory cost adjustments in the event of failure to pay liabilities within the statutory deadline. Correcting invoices with one due date should be easy. But what in the case of installment payments, when the repayment is spread over a period of, for example, 12 months? And in connection with the changes in regulations from January 1, 2016, eliminating the correction of costs, will it be possible to re-classify earlier write-offs as tax costs in the case of repayment of installments in the new tax year? Let's see what has changed!

Correction of costs in regulations until December 2015

The obligation to make a compulsory correction resulted from the provision of Art. 24d of the Personal Income Tax Act. It says directly that if the amount resulting from the invoice (invoice, contract or other document) is included in the tax deductible costs and not paid within 30 days from the date of expiry of the payment deadline, the taxpayer is obliged to reduce the tax deductible costs by the amount resulting from these documents.

Additionally, in the case of payment terms above 60 days, the reduction of tax deductible costs is made after 90 days from the date of including this amount as tax deductible costs, unless it has been settled within this period.

If the value of the costs in the month of the correction is insufficient, the entrepreneur is obliged to increase revenues by the amount by which the tax deductible costs have not been reduced.

Attention!

An interesting fact is that in the case of payment deadlines up to 60 days, the date of the correction is calculated from the date of expiry of the payment deadline from the invoice, while for deadlines over 60 days - from the date the amount is credited to costs.

The reduction of costs is made in the month of the expiry of the period specified in these provisions. If the obligation is settled in the same month (although after the statutory deadline), the obligation to correct will not arise. However, if the reduction is already made and the taxpayer settles the liability, then in the month in which it was paid, the tax deductible costs are increased by the amount of the previously made reduction.

The regulation on keeping a tax book of revenues and expenditures specifies accounting vouchers that are used to recognize corrections in the book - these are:

  • evidence of cost reduction / revenue increase - cost-adjusted negative,

  • evidence of an increase in costs - in the case of a positive cost adjustment.

Cost correction - payment in installments

If the entrepreneur made the purchase with the option of installment payments, then the date of the payment deadline should be the date of payment of the last installment. In the case of payments in 12 installments, this means approximately 360 days. However, in the case of an installment purchase in the period before January 1, 2016, taxpayers may have wondered whether in such a case it is justified to include the entire cost at once. Or should it be split according to the maturity date? The answer is: the cost should be included in full according to the invoice date.

In such a case, the adjustment should be made in the month in which 90 days fall from the moment the item is recognized in costs. If the 90 day falls in January 2016 or another month in 2016, no further cost adjustments should be made as from that period it expires. The unpaid part of the installments should be included in the correction. With each subsequent payment of an installment, the entrepreneur should increase the tax-deductible costs by the value paid.

Cost adjustment - installments are repaid after January 1, 2016

The act amending the provisions on cost adjustment has already been signed by the president, so as of January 1, 2016, Art. 24d of the Personal Income Tax Act regarding the correction of costs.

What, then, are entrepreneurs to do with tax deductible costs posted in 2013-2015 in connection with unpaid liabilities or derecognised purchase invoices relating to installment purchase? The legislator anticipated such a situation and introduced transitional provisions. Therefore, taxpayers who repay their liabilities derecognised from tax costs, after January 1, 2016, will be able to re-classify them as tax deductible costs.

The same applies to the payment of installments. Thus, by paying monthly installments for purchases to which the cost adjustment has been applied, the entrepreneur will be able to recognize it again in the company's costs along with the payment date.

Example 1.

On January 10, 2014, the entrepreneur bought a telephone in installments for the amount of PLN 2,520 net. In the same month, he included it in tax deductible costs. Costs had to be corrected in the amount of PLN 2,380 on the 90th day from the invoice issuance date, i.e. in April 2014, as the installment payment term was 3 years. Thus, paying monthly installments in the amount of PLN 86.10 (PLN 70 net), the taxpayer increases the company's costs every month by the net amount. He will pay installments until January 2017.

Due to the change in regulations, repealing the cost adjustment from the beginning of 2016, the taxpayer does not know whether he will be able to further increase the company's costs by paying installments. Pursuant to the transitional provisions, the entrepreneur will be able to include them as tax deductible costs in the month of payment of the installment, as before, starting from January 2016 until the end of the installment repayment period.