The use of split payment, i.e. advantages and disadvantages of a split payment
From July 1, 2018, entrepreneurs who are VAT taxpayers can voluntarily pay their liabilities using the split payment mechanism. Split payment, because this is how the new payment method is defined in practice, consists in separating payments for goods or services into net value and VAT and transferring these amounts to separate accounts. Due to the freedom to use split payment, not all entrepreneurs will be covered by the new procedure. You will learn in the article whether the use of split payment will be beneficial for the taxpayer or not!
The essence of a split payment
The split payment mechanism applies to B2B transactions in which the parties are active VAT taxpayers. The decision to use split payment is at the discretion of the buyer who, when making a payment via online banking, may use a special transfer message created for this purpose by banks. In the transfer message, the buyer will have to enter the gross value and VAT tax of the transaction (the entire value of the invoice or its appropriate part depending on the payment made), the invoice number that is billed and the supplier's tax identification number. On this basis, the bank will make a payment, from which the gross value will initially be transferred to the supplier's settlement account, from where the VAT amount will be transferred to its VAT account.
It should be noted that the funds accumulated on the supplier's VAT account may only be used to settle VAT liabilities with the tax office or other suppliers. This means that although the funds are the property of the taxpayer, he cannot freely dispose of them. Their possible transfer to the taxpayer's settlement account may only take place with the consent of the tax authority. To this end, the taxpayer must submit a reasoned request. Then, only with the consent of the authority, the bank will withdraw the funds accumulated on the VAT account. In the event of tax arrears, the head of the tax office may refuse to transfer the funds accumulated on the VAT account to the taxpayer's settlement account. The office has 60 days to issue a decision.
Who can use split payment?
Due to the fact that the use of split payment will be voluntary for the time being, not all entrepreneurs will be covered by this mechanism. In practice, split payment will apply only to entrepreneurs who have mutual transactions that are subject to VAT. This means that natural persons who do not conduct business activity will not be able to use the split payment.
On July 1, 2018, every entrepreneur who has a company or private settlement account used for the purposes of their business activity will additionally receive a VAT account. This account will function in conjunction with the settlement account, which means that when the transfer for the invoice is received, when the buyer has used split payment, the net and VAT values will be automatically separated and booked in the appropriate accounts. Therefore, split payment can be used by buyers and suppliers with online banking. It is not possible to use the split payment mechanism in the case of cash and ATM card payments.
Voluntary use of split payment
Both buyers and suppliers decide whether to use split payment to regulate mutual transactions. The latter may include in the contract requirements for the application of the split payment mechanism with regard to the method of settling the receivables. Such a position was confirmed by Zbigniew Makowski, Deputy Director of the Department of Tax on Goods and Services, in the interview "Split payment - questions and answers" of July 2, 2018, in response to the question:Split payment will be voluntary in Poland (at least at the beginning). What is this voluntary nature? Will it be possible to refuse payment in this mechanism? indicated that: granting the initiative to the choice of using the split payment mechanism to the buyer does not mean, however, that the seller will not be able to stipulate in the contract that he does not want to use this form of settlement. Counterparties have freedom in this respect, resulting from the principle of freedom of contracts, and they decide for themselves how they settle the transactions.Thus, the freedom in this respect may be used by suppliers who define the method of payment of the receivables in the contract as one of its terms.
In addition, the use of split payment will not only be optional in terms of the payment method itself. The following are also voluntary: the value of the transaction and the counterparty to whom the payment is regulated with the use of split payment. In practice, this means that the buyer will be able to pay using split payment:
for suppliers of their choice,
in a specific amount, e.g. part of the liability paid using split payment, and part in cash or to the settlement account,
for obligations specified by him (invoices).
Split payment - benefits of use
With regard to the VAT account itself, its creation to the current settlement account is automatic, so the entrepreneur has no real influence on it. Due to the freedom in the use of split payment, the legislator has provided a number of benefits for taxpayers using it. The most important are:
An accelerated deadline for the return of excess VAT - directly to the taxpayer's VAT account.
To be able to take advantage of the accelerated 25-day VAT refund period, the taxpayer must submit an appropriate application together with the submitted VAT return for the period in which the surplus occurred. However, with regard to the standard procedure of VAT refund within 25 days, the conditions specified in Art. 87 sec. 6 and the head of the tax office may not extend the above-mentioned period.
The funds accumulated on the taxpayer's VAT account, in accordance with the agreement with the bank, may be interest-bearing, and the income obtained in this way will not be taxed and will be transferred to the taxpayer's settlement account.
If the payment of the tax liability due to VAT takes place before this date, and the funds for this purpose are transferred from the VAT account, then the taxpayer may reduce the value of the liability by the amount calculated according to the formula:
S = Z * r * (n / 360)
S - value by which the VAT liability should be reduced,
Z - the amount to be paid resulting from the declaration,
r - NBP reference rate (valid 2 business days before the payment date),
n - number of days counted from the date of payment to the date of expiry of the deadline, including this day.
Income from early settlement is not taxable.
Pursuant to Art. 62a paragraph. 7 of the Banking Law Act, the mere opening and maintenance of a VAT account is free of charge.
The use of split payment when paying for invoices will be an indicator of due diligence. In the event that the supplier fails to pay the VAT liability, it is likely that the tax authorities will not contest the right to deduct VAT from the purchase invoice.
In the event of a delay in paying the VAT liability, if the taxpayer pays the amount due using split payment, he will not be bound by increased default interest.
The use of split payment - not always profitable
In relation to the above, the mere possession of a VAT account is beneficial for the taxpayer. Let us also look at the aspects not described directly by the legislator, which undoubtedly do not contribute to the increase in benefits. Among them, it is worth mentioning the following:
VAT refund within 25 days, without unnecessary verification and extension by the tax office, is not entirely beneficial for the taxpayer. Due to the fact that the funds accumulated on the VAT account may be transferred to the taxpayer only with the consent of the office upon his request. The value returned to the VAT account, even in a shorter period, will not result in the funds being able to be distributed by the entrepreneur at his discretion.
The use of split payment in practice also entails increased costs. Although the very creation and maintenance of a VAT account is free, the project assumes that transfers made in the split payment mechanism may also be payable, but the fee may not be higher than the fee for a traditional transfer, which may differ depending on the adopted tariff of a given bank. According to the regulations, transactions made with the use of the split payment mechanism are to apply only to single invoices, which means that it will not be possible to make payments for several invoices together with the use of split payment - which may contribute to an increase in bank fees.
Even after closing the account, the funds accumulated on the VAT account will not be withdrawn. Their return will depend on the tax office. In the event of any tax arrears, the values collected in the VAT account will be used to cover these liabilities.
The funds accumulated on the VAT account may be spent only to cover VAT liabilities with suppliers and the tax office.
Payment of funds accumulated on the VAT account takes place only with the consent of the head of the tax office and at the taxpayer's request.
Not all banks decide to pay interest on the VAT account.
It is not possible to pay receivables in other currencies with the use of the split payment mechanism.
Loss of financial liquidity by some enterprises due to "freezing" of funds in the VAT account.
To sum up, the use of split payment by both the buyer and the supplier may have tangible benefits. Each entrepreneur, when considering the choice of this form of settlement, should take into account the number of transfers made and the amount of his next transactions, as well as the condition of the company. Due to the fact that the funds accumulated on the VAT account are not subject to the direct disposal of the taxpayer, in the event of a possible lack of funds to settle current liabilities, the entrepreneur will not be able to freely use them.