Split payment versus cash payment - how to make payments?

Service-Tax

With the introduction of the amendment to the act on tax on goods and services and some other acts of December 15, 2017, a new mechanism for split payment appeared, the so-called split payment, which applies from July 1, 2018. Taxpayers can transfer VAT to a VAT bank account, the funds of which can be disposed of in a very limited way. Split payment versus cash payment - is it even possible? Answer questions in the article!

What is split payment? What payment methods should I use? Is only bank transfer used? Split payment and cash payment what does the act say about it?

Split payment - what is it?

The term split payment in free translation means a split payment. It is a mechanism that consists in making a payment to the seller's settlement account in a gross amount, and after selecting the transfer message, the VAT amount will be automatically entered in a special VAT bank account. It is worth adding that the split payment system is not obligatory for all entrepreneurs. Therefore, taxpayers have a certain freedom in this matter, they can take advantage of the new law or pay invoices as before.

From November 1, 2019, the split payment mechanism must be mandatory for transactions documenting the activities listed in Annex No. 15 of the VAT Act, the value of which is at least PLN 15,000 zloty. More on the topic in the article: Mandatory split payment - from November 2019? How to Prepare?

Split payment and payment by bank transfer

The split payment mechanism is used when settling liabilities by bank transfer. After receiving the invoice, the entrepreneur transfers the money from his bank account in the gross amount (the VAT amount is automatically charged from the buyer's VAT bank account - the condition is, however, the availability of funds on this account) to the seller's account, while the VAT amount is automatically transferred to the settlement account and the seller's VAT account after selecting a special transfer message. Payments with the use of split payment can only be made by entrepreneurs concluding transactions with other companies, which means that it will not be possible to apply the mechanism in the case of transactions for private persons who do not conduct business activity.

A special VAT account is set up for each entrepreneur who has a settlement (company) account. Both banks and credit unions are required to open a new VAT account. It is worth adding that these accounts are free of additional fees and commissions and do not require a separate agreement.

It should be remembered that taxpayers who keep a tax book of revenues and expenses or a record of revenues are not required to keep company bank accounts, however, due to changes in the regulations regarding the white list of taxpayers and the obligatory split payment for some activities, it is worth considering its establishment.

Start a free 30-day trial period with no strings attached!

Example 1.

On July 1, 2019, Ms Anna wants to pay for the invoice received on June 30, 2019 using the split payment mechanism. The balance of Mrs. Anna's VAT account is PLN 0. Is such a transfer possible?

If Mrs. Anna does not have enough funds on the VAT account, it is enough for her to have the required amount on the settlement account to be able to make the payment using the split payment.

Split payment and cash payment

Split payment and cash payment is a topic that arouses numerous discussions among entrepreneurs. Is it possible to settle liabilities with cash or a payment card? The answer is no. Split payment is not processed if payment is made in cash or by card. However, entrepreneurs should not be afraid that each of them will be obliged to settle accounts with the counterparty only on the basis of a transfer, because the split payment mechanism for activities other than those listed in Annex 15 to the VAT Act is not mandatory. Therefore, entrepreneurs who do not intend to use it or are not obliged to do so, will be able to make payments using various methods. Split payment is not possible when paying in cash.

Expenses over 15,000 PLN paid in cash do not constitute a tax deductible cost.

Example 2.

Mr. Radosław intends to use the split payment mechanism. He received an invoice from the contractor for the service provided, for which he is to make a payment in cash. In such a situation, can he make a payment using split payment and a cash payment - the split payment mechanism?

Due to the fact that the split payment mechanism applies only to payment by bank transfer using a special transfer message, it is not possible to settle liabilities in cash so that the VAT amount is transferred to a special VAT account. Therefore, Mr. Radosław will not use the split payment mechanism if he pays the entire value of the liability in cash.

Joint and several liability and split payment

If the taxpayer makes a payment to a contractor other than the one indicated on the invoice by mistake, a question may arise who will be responsible for the VAT settlement. Well, as follows from the VAT Act, if the payment is made in the manner specified in paragraph 2 for a taxpayer other than that indicated in the invoice referred to in paragraph 1. 3 paragraph 3, the taxpayer for whom this payment was made, jointly and severally liable with the supplier of these goods or the service provider for the tax resulting from this supply of goods or the service provider, not settled by the supplier of goods or the provision of services, up to the amount corresponding to the amount received on the VAT account.

Therefore, both the entity that mistakenly received these funds and the seller, who should pay the value of this tax to the office, are jointly and severally liable for the settlement of the liability in the amount of VAT paid to the wrong account by the buyer.

Joint and several liability of debtors is characterized by the fact that there are at least two debtors, and the creditor has the right to demand all or part of the performance from all debtors - from several or one of them. The creditor makes the choice himself and has the full right to do so.

Example 3.

Company X purchased goods from company Y for the amount of PLN 3,000. Company X made a transfer using the split payment mechanism by mistake to the account of company Z. Who will be jointly and severally liable in this connection?

Contractor Z and Y will be jointly and severally liable.

To sum up, split payment and cash payment cannot occur together. Taxpayers who want to use the split payment mechanism are required to make payments in the form of a transfer to the seller's bank account in the gross amount, while the funds from this account will be automatically transferred to the VAT bank account, which is created free of charge for each taxpayer with a settlement account.