Situations in which there is no right to deduct VAT

Service-Tax

Entrepreneurs who have the status of an active VAT taxpayer have the right to deduct VAT from the expenses incurred. In some cases, however, there are doubts about this possibility. There are cases where the taxpayer cannot deduct input VAT.

Invoice issued by the wrong entity and the right to deduct VAT

If the invoice was issued by a non-existent entity (non-existent address, fictitious tax identification number, the entity has never been registered, etc.) or is not authorized to issue invoices, the taxpayer loses the right to deduct VAT on the expenditure incurred. An invoice issued by a non-existent entity according to art. 88 sec. 3a point 1 of the VAT Act does not constitute a basis for the entrepreneur to deduct VAT. However, if the invoice was issued by an existing entity, but not entitled to issue invoices, the entrepreneur may include the expenditure in the gross amount.

Confirmation of such proceedings is the information on the scope of application of the tax law, issued by the Tax Chamber in Poznań, ref. No. BD-G005-31 / 04, dated February 24, 2005, in which we read that: (...) if the expenditure has been documented with an invoice issued by an entity not authorized to issue invoices, which means that the taxpayer is not entitled to a reduction in the amount or refund of the difference in tax on goods and services, and the incurring of the expenditure and its relation to the income obtained do not raise any doubts, charged and paid tax on goods and services may be classified as tax deductible costs.

Is there a right to deduct VAT from the VAT invoice received?

An entrepreneur who has purchased used goods, antiques, works of art or collectors' items will receive a VAT margin invoice from their supplier. This is a special type of invoice that does not contain the amount of input tax indicated (so there is no right to deduct VAT). This is due to the fact that the seller is obliged to settle VAT on the margin he charges. Such a procedure is specified in Art. 120 paragraph 4 of the VAT Act. In connection with the above, the entrepreneur who received the VAT invoice may only include the gross amount indicated on it in the costs of business activity.

Obvious situations excluding the right to deduct VAT

In the course of business, there are situations that prevent the taxpayer from deducting the input VAT on the purchase made (despite showing the VAT amount on the invoice). Such situations are, among others:

  • not having a proof of purchase in the form of an invoice, simplified invoice or duplicate containing the VAT amount,

The taxpayer has the right to deduct VAT provided that he has the appropriate documents. Therefore, an entrepreneur who does not have an invoice or its duplicate must contact the seller to issue such a document.

  • no registration as an active VAT payer on the VAT-R form,

The above is governed by Art. 88 sec. 4 of the VAT Act: The reduction of the amount or the refund of the difference in output tax does not apply (...) to taxpayers who are not registered as active VAT taxpayers (...).

  • purchase from entities exempt from VAT

This is due to Art. 88 sec. 3a point 2 of the above-mentioned of the Act, which states that it is not possible to reduce the output tax or refund the tax difference or refund the input tax on a transaction documented with an invoice that is not subject to tax or is exempt from VAT.

Mixed sale and the right to deduct VAT

Taxpayers who carry out both taxed and VAT-exempt activities may deduct input VAT only on expenses related to taxable activities. However, there are situations where the expenditure relates to both types of sale (exempt and taxable), and the taxpayer is unable to determine exactly what part of the cost is related to the taxable activity. In such a situation, the proportion used for the deduction of VAT should be applied, determined by the head of the tax office (this applies to the calculation of the first proportion). In subsequent years, the proportion can be calculated independently on the basis of the turnover achieved in the previous year in relation to the tax year in which the proportion is determined).

Attention!

The proportion can be calculated using the general formula:

annual turnover for the performance of activities / annual turnover for the performance of both taxed and exempt activities

Turnover values ​​should be taken from the previous year and the result rounded to the nearest whole number. It is important here that the method of determining the proportion corresponds to the specificity of the activity performed by the taxpayer and the acquisitions made by him.

Food and accommodation expenses and the right to deduct VAT

According to Art. 88 sec. 1 point 4 of the VAT Act, the entrepreneur is not entitled to reduce the amount of tax due by deducting the input VAT on the purchased accommodation and catering services. However, in a situation where the taxpayer purchases catering services (which are often confused with catering services), it is possible to deduct VAT. This is because the catering services are provided outside the provider's premises.

The confirmation of the above may be the individual interpretation with reference number 0115-KDIT1-2.4012.800.2017.1.AJ issued by the Director of the National Tax Information on January 5, 2018, in which we read that: (...) catering services are separate services from catering services. Thus, due to the different nature of these services, it cannot be concluded that the limitations in deducting input tax referred to in Art. 88 sec. 1 point 4 of the Act.

Attention!

Catering services consist in delivering to the place indicated by the ordering party previously prepared meals and drinks, along with appropriate services enabling their immediate consumption.

Food services consist of physically preparing and serving a meal to the client at the place where it is being prepared, such as a diner or restaurant.

Example 1.

The owner of the enterprise keeps a tax book of revenues and expenses and is an active VAT taxpayer. He went on a business trip to Toruń and used hotel services. How should I book an invoice for a hotel that contained values:

net: PLN 600, VAT 8%: PLN 48, gross: PLN 648?

Costs incurred in connection with renting a room on the basis of the invoice received should be booked in the gross amount of PLN 648 in column 13 of the KPiR - other expenses. The entrepreneur is not entitled to deduct VAT from the purchase of hotel services. However, the VAT paid can be classified as tax deductible costs (provided that it is related to the taxable activity), so the entire amount is tax deductible.

Example 2.

In May 2018, the owner of the company organized a health and safety training and used the services of a catering company. In connection with the provision of the service, an invoice was issued for the amount of PLN 1,500 gross, including 8% VAT of PLN 111.11. Is it entitled to a deduction of VAT on the invoice received for catering services?

In this case, the owner of the company has the right to deduct the input tax from the invoice for the catering service in the amount of PLN 111.11. Therefore, on the basis of the invoice issued by the supplier, it deducts VAT and includes the net amount from the invoice in column 13 of the KPiR - other expenses.

Posting cost invoices in the wFirma.pl system, for which there is no right to deduct VAT

The catering service, accommodation service, the received VAT invoice, margin and the received invoice from a non-VAT owner should be posted in the wFirma.pl system as an invoice without VAT via the tab: EXPENSES »ACCOUNTING» ADD »INVOICES (WITHOUT VAT).

In the window for adding a new expense, enter the data according to the invoice from the vendor, and in the TOTAL field, enter the gross amount. The posted expenditure will be included in the appropriate column of the KPiR according to the selected type of expenditure.