Extension of the payment deadline and bad debt relief - when should VAT be corrected?

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Taxpayers can benefit from bad debt relief, but entrepreneurs do not always want their contractor to correct the input tax already deducted. In the interest of good relations, taxpayers often change the payment date specified in the invoice. Extension of the payment deadline and bad debt relief - how will it affect the invoice settlement? We answer!

What are the bad debt relief rules?

The rules for settling the tax on goods and services, in relation to bad debts, are set out in the provisions of Art. 89a and art. 89b of the Value Added Tax Act, hereinafter referred to as the "VAT Act".

Pursuant to Art. 89a paragraph. 1 of the VAT Act, the taxpayer may correct the tax base and the tax due for the supply of goods or services in the territory of the country in the case of claims, the irrecoverability of which has been probable. The correction also applies to the tax base and the tax amount attributable to the part of the amount of the receivable which has been made probable.

Pursuant to Art. 89a paragraph. 1a of the VAT Act, the uncollectibility of receivables is considered probable if the receivable has not been settled or disposed of in any form, within 90 days from the date of its payment deadline specified in the contract or invoice.

When will we take advantage of the bad debt relief?

Pursuant to Art. 89a paragraph. 2 of the VAT Act, the provision of para. 1 shall apply if the following conditions are met:

1. The delivery of goods or the provision of services is made for the benefit of the taxpayer referred to in Art. 15 sec. 1, registered as an active VAT payer, not in the course of bankruptcy or liquidation.

2. On the day preceding the date of submitting the tax return in which the correction referred to in para. 1:

and). the creditor and the debtor are taxpayers registered as active VAT taxpayers;

b). the debtor is not in the process of bankruptcy or liquidation.

3. From the date of issuing the invoice documenting the claim, no more than 2 years have elapsed from the end of the year in which it was issued.

Pursuant to art. 89a paragraph. 3 of the VAT Act, the correction referred to in sec. 1, may take place in the settlement for the period in which the irrecoverability of the debt is considered probable, provided that by the date the creditor submits the tax declaration for this period, the debt has not been settled or disposed of in any form.

Taking into account the above, the taxpayer may take advantage of the bad debt relief after 90 days from the date of payment, provided that all statutory conditions are met.

What if I pay after the deadline?

Pursuant to art. 89a paragraph. 3 of the VAT Act, the correction referred to in sec. 1, may take place in the settlement for the period in which the irrecoverability of the debt is considered probable, provided that by the date the creditor submits the tax declaration for this period, the debt has not been settled or disposed of in any form.

In the event that, after the submission of the tax return, in which the adjustments referred to in para. 1, the receivable has been settled or disposed of in any form, the creditor is obliged to increase the tax base and the amount of tax payable in the settlement for the period in which the receivable was settled or disposed of.

In the light of Art. 89a paragraph. 4 of the VAT Act, in the event of a partial payment of the amount due, the tax base and the amount of tax due are increased in relation to this part. Based on Article. 89a paragraph. 5, the creditor is obliged to notify the competent head of the tax office about this correction, together with the amounts of the correction, the debtor's data and the tax declaration in which he makes the correction referred to in para. 1.

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Extension of the payment deadline and bad debt relief

In economic practice, counterparties wanting to ensure the best possible terms of cooperation, extend the payment terms resulting from the invoice. Such behavior may be motivated by the fact that the contractor's temporary troubles should not affect his business relations.

Example 1.
The original payment date specified in the invoice issued on January 10, 2019 was set on January 17, 2019. On the basis of the settlement concluded, the taxpayers extended the payment deadline until February 15, 2019. At the same time, it was agreed that the payment deadline would be kept if the funds were found. at the cash desk or on his bank account, on the date specified.

In this case, the deadline for the taxpayer to take advantage of the bad debt relief should be counted from February 15th.

Example 2.
The original payment date included in the invoice issued on February 15, 2019 was set on February 28, 2019. On the basis of the settlement concluded on June 30, 2019, the taxpayers extended the payment deadline until August 15, 2019. At the same time, it was agreed that the payment deadline was will be kept if the funds are in hand or on his bank account on the date specified.

In this case, unfortunately, the extension of the deadline does not affect the need to correct the tax charged by the buyer. Despite the fact that the parties to the transaction are free to determine the maturity dates of their receivables, in this case the deadline resulting from Art. 89b of the VAT Act has already expired. It does not matter if you set a new date after the correction has to be made.

In summary, debt extension and bad debt relief will not always occur together. Changing the payment date from the original invoice is not the seller's obligation, however, such action may postpone the obligation to correct the VAT deducted by the buyer.