Relief for bad debts in PIT on the seller's side during the pandemic

Service-Tax

During the tax year, entrepreneurs are required to calculate and pay income tax advances. In order to prevent payment gridlocks, and thus counteract dishonest contractors who do not pay their liabilities on time, a bad debt relief mechanism in the income tax has been implemented. The Anti-Crisis Shield 4.0 introduced further facilities for sellers using this tool to additionally protect them against the negative effects caused by the pandemic. Let's check how bad debt relief should be settled on the seller's side!

Bad debt relief in the actual income tax advance

Pursuant to Art. 30 point 4 of the Act on interest subsidies for bank loans granted to entrepreneurs affected by COVID-19 and on simplified proceedings for approval of an arrangement in connection with the occurrence of COVID-19, i.e. Anti-Crisis Shield 4.0, Art. 52w, which shortens the current deadline for taking advantage of the bad debt relief.

The seller (creditor) may take advantage of the bad debt relief in PIT in 2020 in the period in which 30 days have passed from the date of expiry of the payment deadline specified in the invoice (bill) or in the contract, until the settlement period in which the debt was settled or sold.

It is a great convenience for entrepreneurs who do not receive payments from contractors on time, because before the entry into force of the Anti-Crisis Shield 4.0, the deadline for taking advantage of the bad debt relief was as much as 90 days.

Example 1.

Mr. Łukasz on April 4, 2020issued an invoice to XYZ for the amount of PLN 1230 (including PLN 230 VAT), with the payment date on May 20, 2020. The XYZ company did not settle the liability by the end of June. Accordingly, in the advance payment for June, Mr. Łukasz may reduce the tax base by the value of the outstanding amount, i.e. by PLN 1,000, because in June 30 days passed from the date of the payment deadline indicated on the invoice, and the XYZ company did not pay its liability.

Bad debt relief in simplified advances

The shortening of the deadline for the seller to use the bad debt relief tool also applies to taxpayers who have chosen to pay tax advances in a simplified form. In this case, the tax base is not reduced, but the value of the advance income tax calculated in a simplified manner. In the month in which 30 days have elapsed from the date of expiry of the payment deadline specified in the sales invoice or in the contract, the seller may reduce the advance payment by:

  • 17% of the value of sales that has not been settled within the above-mentioned period - in the case of settlement on general terms;

  • 19% of the value of sales that has not been settled within the above-mentioned period - in the case of taxation with a flat tax.

In a situation where the value of the simplified advance payment is lower than the amount of the bad debt relief, by which the advance payment can be reduced, the non-deducted value of the relief is not forfeited - it reduces the advance payment due for the next month, provided that the claim has not been settled or disposed of.

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Example 2.

Mr. Aleksander has chosen taxation on general terms and pays simplified tax advances in the amount of PLN 150 every month. On May 8, he issued an invoice to the company ABC for the amount of PLN 1,000 net with a payment term of 7 days. Due to the lack of receipt of payment by the end of June, Mr. Aleksander may take advantage of the bad debt relief in the amount of PLN 170. This means that the advance payment for June will be PLN 0, because the amount of the relief exceeds the value of the advance payment, and if ABC fails to pay its liabilities in July, the advance payment for July will be PLN 130.

Calculations:

The amount of the discount: 17% × 1000 = PLN 170.

Advance payment for June: PLN 150 - PLN 170 = (PLN -20) - the advance payment is PLN 0, the discount of PLN 20 is transferred to the next month.

Advance payment for July: PLN 150 - PLN 20 = PLN 130.

The Anti-Crisis Shield 4.0, however, did not introduce changes in the scope of a further increase in the tax base. This means that the seller using the bad debt relief in the month in which he received the payment is obliged to increase the tax base by the deduction made earlier.

In summary, reducing the deadline for a seller to take advantage of bad debt relief from 90 to 30 days is a tool to prevent liquidity loss. Along with the Anti-Crisis Shield 1.0, the legislator has already introduced changes to the application of the bad debt relief, but they only applied to buyers. This means that the regulations related to the changes in the application of the bad debt relief in PIT, which were originally introduced in 2020, have now been significantly limited, which will have a positive impact on the financial condition of Polish entrepreneurs, especially in the difficult time of the pandemic.