The service as part of unregistered activity for the spouse's company in KPiR

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From April 30, 2018, new regulations in the field of conducting unregistered activities apply. It is one of the elements of the Business Constitution, the main assumption of which is to make it easier for small entrepreneurs to run a business. Will the service provided as part of unregistered activity for the spouse's company constitute a tax cost? Check!

Undeclared activity

Pursuant to Art. 5 sec. 1 of the Entrepreneurs' Law Act, business activity performed by a natural person whose income due from this activity does not exceed 50% of the minimum wage in any month (in 2019 it is PLN 1125). Unregistered activity is available only to those people who have not performed any business activity in the last 60 months.

The performance of activities based on the above provision is associated with numerous simplifications and facilitations. A person who decides to conduct unregistered activity is not required to submit a notification to CEIDG, GUS or the Tax Office. He does not have to pay ZUS contributions for this. In addition, there is no obligation to pay monthly tax advances. There is also no need for complicated accounting as part of unregistered activity.

In the context of the analyzed case, it is also important that, pursuant to the provisions of the Personal Income Tax Act, income generated in the course of unregistered activity does not constitute income from business activity. Pursuant to Art. 20 paragraph 1b of the PIT Act, income from unregistered activity is included in the so-called income from other sources. Income from undeclared activities does not qualify as business income. Pursuant to the PIT Act, the income generated in this way is considered to be the so-called other sources of income. It must be borne in mind that only if the income from unregistered activity exceeds the limit of PLN 1125 in a given month, this activity becomes a business activity, starting from the day on which this amount was exceeded. In this case, the person performing unregistered activity is obliged to submit an application for entry in CEIDG within 7 days from the date on which the amount was exceeded. As long as the monthly income limit of PLN 1,125 is not exceeded, a person conducting unregistered activity is not an entrepreneur.

Spouse's remuneration and the cost of the entrepreneur

In the event that one of the spouses performs work for the business activity of the other spouse, the content of Art. 23 sec. 1 point 10 of the PIT Act. Pursuant to this provision, the value of the taxpayer's own work, his spouse and minor children, and in the case of operating in the form of a company that is not a legal person, also the spouses and minor children of the partners of that company are not considered to be tax deductible costs.

The above regulation means that if a spouse provides work for the other spouse's business, the value of this work cannot constitute a tax deductible cost.

Example 1.
The taxpayer conducts business in the field of accounting services. His wife helps him run his business by providing administrative support to the accounting office. She estimated the value of her own work at PLN 3,000. Pursuant to Art. 23 sec. 1 point 10 of the PIT Act, the value of the wife's work does not constitute a tax cost for the taxpayer as part of his economic activity. From January 2019, the legislator introduced changes from which it follows that the value of the remuneration of a spouse employed in business activity may constitute a tax deductible cost. Own work, however, is still not a cost.

The service as part of unregistered activity for the spouse's company and the cost

In the context of the presented exclusion of the spouse's work value from tax deductible costs, the question arises whether the service under unregistered activity for the spouse's company will not be a cost as well?

The good news for taxpayers is the fact that, in the opinion of the tax authorities, the concept of "work" should be distinguished from the concept of "service". As a result, if one of the spouses provides services to the other spouse as part of its business activity, the value of such services may constitute a tax deductible cost.

Although, as already indicated, unregistered activity is not an economic activity, analogous regulations apply to the provision of services. As a consequence, the provision of services as part of unregistered activity does not constitute the spouse's own work, referred to in Art. 23 sec. 1 point 10 of the PIT Act. The service provided as part of an undeclared activity does not constitute the spouse's own work. As a result, the service under unregistered activity for the spouse's company constitutes a tax deductible cost in the business activity of the spouse purchasing the service. Example 2.

The taxpayer conducts unregistered activities. In this regard, he provided his wife (who runs a non-agricultural business) with a service worth PLN 500. The value of this service is a tax-deductible cost for the spouse in her business. On the other hand, for the taxpayer, income from unregistered activity is income from other sources.