Subcontractor services - how to include it in the KPiR? Part 1
A significant number of taxpayers running a business use services provided by subcontractors. There are many types of subcontracted services as well as the effects and end results of providing these services. At the end, it remains to record the purchased services of subcontractors in the PKPiR records. And at this point a number of doubts arise as to where to include the received service.
The problem of recognizing costs constituting the services of subcontractors
The problem of appropriate classification of the purchased services provided by subcontractors has existed in everyday business for many years. The Ministry of Finance has also been dealing with the clarification of various taxpayers' cases for years.
The basic problem of qualifying the purchased service is whether the taxpayer is to include it as a remaining expense, because it is a service and should not be included anywhere else.
However, it may happen that the subcontractor's service will determine the creation of the material used by the entrepreneur to manufacture the finished product or the creation of the finished product after prior processing by the contractor.
However, there are many more problems with the proper classification of the purchased service from a subcontractor. It is therefore worth analyzing in depth when such a service will be included in column 10 of PKPiR and when in column 13 of PKPiR.
Goods, material or maybe other expenses?
The Ordinance of the Minister of Finance of August 26, 2003, as amended, on the keeping of the tax revenue and expense ledger, hereinafter referred to as the ordinance on keeping the PKPiR, contains basic regulations on the recognition of costs and revenues in the tax revenue and expense ledger.
Unfortunately, the regulation does not contain any provisions regulating the treatment of subcontractors purchased by the taxpayer. On the other hand, in the economic practice of companies, there are various cases of corporate costs arising as services purchased from subcontractors, which are difficult to clearly assign to the nature of a specific expenditure under the regulation.
Therefore, in the first place, the issues of materials, goods and other expenses need to be clarified in the light of the statutory definitions contained in the regulation on the operation of PKPiR.
Pursuant to § 3 point 1 of the regulation on the operation of PKPiR, the goods will be commercial goods, basic and auxiliary materials, semi-finished products, finished products, materials accepted from ordering parties for processing or processing, as well as shortages or waste.
Next, the legislator explains that
commercial goods are goods in an unprocessed state that will be intended for further resale, and the goods will also be by-products obtained in connection with running special departments of agricultural production,
basic materials are created in the production process or in the provision of services and are the main determinant of the creation of a finished product, and in addition, the materials will also be the components of the product or closely related to it,
auxiliary materials are materials used up in the course of business activity that directly convey their properties to finished products,
finished products are own products created as a result of finished production, i.e. all services used for its production, scientific and research works, design works, geodetic and cartographic works and other works (e.g. construction works) have been definitively completed and as a result a finished product has been created,
work-in-progress, as the name suggests, is work in progress, semi-finished products, i.e. unfinished products, including works performed, services before their completion,
deficiencies are products of own production, which are different from the technical requirements established in the production process, as well as commercial goods damaged during transport or storage,
waste are materials damaged during technological processes or due to destruction.
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Subcontracting services and the cost of production?
Referring to the explanations of the legislator within the terms of material, goods or other expenses, reference should also be made to § 3 point 4 of the PKPiR Regulation, where the legislator specifies the date of the production cost, by which he understands all costs directly and indirectly related to the processing of materials, services or the acquisition of minerals, excluding the costs of selling finished products and services.
As can be seen from the above analysis, the services received from subcontractors, depending on their proper qualification (material, goods or other expenses), will determine the amount (monthly or annual) of income tax, because the subcontractor's service is included in:
column 10 PKPiR - purchase of commercial goods and materials according to purchase prices and classified (contributing) to the creation of material, goods, unsold by the end of a given tax year, shall be excluded from costs on the basis of the inventory drawn up at the end of the year,
column 13 PKPiR - other expenses, will increase the costs of a given period and will not be excluded from tax deductible costs through inventory at the end of the year.
Additional explanations to PKPiR
In the additional explanations regarding the operation of PKPiR, the legislator informs that in column no .:
10 the taxpayer should recognize the purchase of materials and commercial goods according to the purchase price,
11 the taxpayer enters the incidental costs related to the purchase of goods or materials, e.g. costs related to transport, loading and unloading, insurance on the way,
13, the taxpayer recognizes other costs not related to columns 10 and 11 and 12 of PKPiR and excluding expenses that are not tax deductible costs.
Examples of expenses assigned by the legislator to column 13 of PKPiR include: rent for premises, electricity, gas, water, central heating, telephone charges, fuel purchases, renovation expenses, depreciation of fixed assets, insurance premiums employees' pensions and disability pensions in the part financed by the employer, employee accident insurance contributions, value of purchased equipment.
In addition, operating expenses of cars not entered into the register of fixed assets, but used for business purposes, costs of business travel (including mileage) and many others.
Taking into account all the above statutory clarifications, it is still not certain that the taxpayer will correctly classify the acquired services of subcontractors in the PKPiR records. It is worth noting that a few years ago, the tax authorities took the position that the services of subcontractors purchased by a taxpayer running a business should always be included in column 13 of the Polish Railways. However, this position has changed somewhat over the last few years. Therefore, it is worthwhile to refer to the interpretation lines of recent years and analyze the direction in which the direction of determining the correct application of the provisions, signaled by the Ministry of Finance, has developed.