Settlement of the policy paid in installments in the KPiR

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The method of settling the insurance policy paid in installments depends on the adopted method of keeping the revenue and expense ledger. There are two ways of recording operations in the KPiR - the cash method and the accrual method.

We will illustrate the differences in the records with the use of individual methods using examples.

Example 1.

The taxpayer keeps the tax book of revenues and expenses using the cash method. In October 2013, he purchased passenger car insurance worth PLN 40,000. The insurance period is valid from October 15, 2013 to September 14, 2014. The insurance amount has been divided into two installments. The first installment was paid by the taxpayer on October 15, 2013, and the second installment is due in April 2014.

The taxpayer should fully deduct the due insurance premium as tax deductible costs in October 2013. On the other hand, from January 2014, he must adjust the costs by the value of the second (unpaid) insurance installment and include it as costs only at the time of actual payment.

Pursuant to Art. 22 sec. 4, section 6b of the Personal Income Tax Act (hereinafter: updof), with the cash method, the taxpayer has the option of including the paid insurance in tax costs once in full on the date of conclusion of the insurance policy agreement.

With the accrual method, the taxpayer includes indirect costs in the KPiR on the date they are incurred. However, when the costs relate to a period exceeding the tax year, and it is not possible to determine what part of them relates to a given tax year, they should be divided proportionally to the length of the period to which they relate (Article 22 (5c) of the updof).

Therefore, when an insurance policy is concluded for two years, its cost should be divided proportionally over this period.

Example 2.

On October 11, the taxpayer concluded an insurance policy agreement for the period from October 15, 2013 to October 14, 2014. The premium paid is PLN 2,200, it was paid in full at once.

Cash method: means that the taxpayer can charge the paid premium as costs and enter it into the KPiR as well.

Accrual method: means that the taxpayer should divide the premium paid pro rata over two years. And yes:

  • in 2013, on the date of concluding the contract, the costs will include [(2200: 365) * 78] = 470.14
  • On January 1, 2014, the costs will include [(2200: 365) * 287] = 1729.86

Important!

When paying the policy in installments, you should remember about the changes in income tax that came into force on January 1, 2013. If the installments are not paid on time, the costs should be adjusted:

  • payment deadline no more than 60 days - correction within 30 days from the date of expiry of the payment deadline,
  • payment deadline longer than 60 days - correction after 90 days from the date of expiry of the payment deadline.

In a situation where the taxpayer should make a correction and the amount of costs incurred is less than the amount of the correction, then he must increase revenues by an amount that cannot reduce the costs.

Example 3.

On October 11, the taxpayer concluded an insurance policy covering the period from October 15, 2013 to October 14, 2014. The insurance premium was PLN 2,200, payable in two installments. He paid the first one in October, and the second one is payable in April 2014. He paid his contributions on time.

Checkout method

With this method, the taxpayer may fully deduct the insurance premium as tax costs on the date of conclusion of the contract, i.e. October 11, 2013.On January 10, 2014, 90 days will elapse from the date the policy is recognized as costs, therefore, it should cancel the costs of PLN 1,100 (amount of unpaid installments). Only on April 10 will it be charged again (assuming it will be done within the set deadline).

Accrual method

With this method, the taxpayer must divide the premium paid proportionally over two years:

  • in 2013, on the date of concluding the contract, the costs will include ((2200: 365) * 78) = 470.14,
  • On January 1, 2014, the costs will include ((2200: 365) * 287) = 1729.86.

In addition, in January 2014, the taxpayer should adjust the costs for the unpaid second installment of the policy - PLN 1,100. Only in April, when he pays the rest of the insurance, will he be able to include it in his tax costs.