Accounting for VAT charged in 2014
From January 1, 2014, new rules for settling tax on goods and services apply, regarding both the emergence of a tax obligation on the part of the seller and the deduction of input VAT by the buyer. At first glance, the amended regulations seem confusingly similar to those that were in force until the end of 2013, but a more detailed analysis shows that there are many changes and doubts.
First of all - tax obligation with the seller
At the outset, it should be noted that the general rule regarding the deduction of input tax has remained unchanged. Output VAT can be reduced by input VAT only to the extent that the purchased goods and services are used for the performance of taxable activities (with some exceptions). On the other hand, the dates in which the entrepreneur is entitled to this right have been modified.
From 2014, the taxpayer may deduct input VAT in the settlement for the period in which a tax obligation arose in relation to goods and services purchased or imported by the taxpayer (until 2014, the taxpayer usually had the right to deduct in the settlement for the period in which he received an invoice or customs document). What does it mean? First of all, in order to deduct input VAT, entrepreneurs must track exactly when the tax obligation arose with the seller on a given transaction.
It is worth noting here that after the amendment to the VAT Act, the tax obligation arises, as a rule, upon the delivery of goods or services, and in the event of receipt of all or part of the payment before that date - upon its receipt. There are, however, some exceptions regarding, for example, utilities, rental services or permanent legal services, when the obligation arises at the time of issuing the invoice, provided it is issued on time.
Second - having an invoice
An additional condition that must be met in order to be able to deduct the input tax on goods and services is - so far - possession of an invoice documenting the purchase of goods or services. The Buyer has no right to reduce the VAT due by the input VAT before receiving the said document.
Another rule is that if the taxpayer does not deduct the tax in the period (month or quarter, depending on the selected form of settlement) in which the tax obligation arose, he will be able to do so in one of the two subsequent accounting periods.
As you can see, the new regulations are confusingly similar to those that were in force until the end of 2013 - it is also necessary to have an invoice, you can also read about the next three settlement periods in which the taxpayer is entitled to deduct input VAT. Nevertheless, it should be remembered that the main condition determining the possibility of reducing the output tax by the input tax has fundamentally changed - it is no longer an invoice, but the emergence of a tax obligation. Therefore, in order for the taxpayer to be able to deduct input VAT, it must meet two cumulative conditions:
check whether a tax obligation has arisen on a given transaction,
have an invoice documenting the delivery of goods or the performance of services.
Where did the difficulties come from?
Fulfilling the above-mentioned the terms and conditions does not seem very complicated. However, the problem may arise when the entrepreneur receives the invoice late or has only a duplicate of the document, issued after a certain period of time.
In this case, it may not be possible to meet both conditions at the same time (i.e. VAT deduction in the period when the tax obligation arises or one of the following two, but not earlier than in the settlement for the period in which the invoice was received). This is best illustrated by an example.
Jan Kowalski runs his own business. He is registered as an active VAT taxpayer and is billed monthly. In February 2014, he bought the goods he received and paid for. For unknown reasons, he did not receive the invoice and asked for a duplicate, which he did not receive until August 2014.
The first tax period in which he can make a deduction is the month in which the tax obligation arises. Due to the fact that the goods were delivered in February, it is the second month of the year. Mr. Jan may reduce the output VAT by the amount charged also in the next two periods, i.e. in March and April. Unfortunately, in this case, the condition is also to have an invoice documenting the said delivery during the three billing periods indicated. Consequently, in this situation it is impossible to meet the two conditions set out above.
It should be remembered, however, that the right to deduct input tax is a fundamental right of a taxpayer, the implementation of which should be unambiguously enabled by regulations. Currently, it is difficult to say at what point in such cases it will be possible to deduct VAT (it seems reasonable to allow the granting of such a right in the period in which the invoice was received, i.e. in the example given - in August). For some time, however, this matter will remain unclear, and taxpayers are left waiting for - hopefully - the fastest possible response from the Ministry of Finance.