Loss of the right to a lump sum during the tax year
Entrepreneurs starting a business may choose various forms of taxation. One of them is the registered lump sum. The above form of taxation is characterized by a large simplicity of settlements. Taxpayers choosing this method of settlement must, however, remember that in order to use it, they must meet the statutory requirements. In the event of failure to meet the above requirements, the right to the lump sum is forfeited.
Taxation in the form of a registered lump sum - economic activity
Pursuant to the provision of Art. 1 point 1 of the act on flat-rate income tax on certain revenues earned by natural persons, the act regulates taxation with flat-rate income tax on certain revenues (income) obtained by natural persons conducting non-agricultural economic activity.
Whereby, pursuant to Art. 4 sec. 1 point 12 of the above-mentioned of the Act, non-agricultural economic activity should be understood as non-agricultural economic activity within the meaning of the Income Tax Act.
The concept of non-agricultural economic activity has been defined in Art. 5a point 6 of the Personal Income Tax Act, hereinafter referred to as the PIT Act. Pursuant to this provision, whenever the act refers to economic activity or non-agricultural economic activity, it means a gainful activity:
- manufacturing, construction, trade, service,
- consisting in searching for, identifying and extracting minerals from deposits,
- consisting in the use of things and intangible assets
- conducted on its own behalf, regardless of its result, in an organized and continuous manner, from which the revenues obtained are not included in other revenues from the sources listed in art. 10 sec. 1 points 1, 2 and 4-9.
It should be emphasized, however, that in the case of persons conducting non-agricultural economic activity, the possibility of taxation in the form of a lump sum on recorded income depends on the lack of premises specified in Art. 8 of the Act on flat-rate income tax on certain revenues earned by natural persons.
Pursuant to Art. 4 sec. 1 items 1 and 4 above the terms used in this act have the following meanings:
- service activity - non-agricultural business activity, the subject of which are activities classified as services in accordance with the Polish Classification of Products and Services (PKWiU) introduced by the regulation of the Council of Ministers of September 4, 2015 on the Polish Classification of Products and Services (PKWiU) (Journal of Laws item 1676, of 2017, item 2453, of 2018, item 2440, of 2019, item 2554 and of 2020, item 556), subject to items 2 and 3 (item 1);
- manufacturing activity - activity as a result of which new products are created, including the sale of products of own production, conducted by the taxpayer (point 4).
The Polish Classification of Products and Services means services as:
- all activities provided for the benefit of economic entities conducting activities of a productive nature, which do not directly create new material goods - production services;
- all activities provided for the benefit of national economy units and for the benefit of the population, intended for the purposes of individual, collective and general consumption.
Taking into account the above, we can tax business activity in the form of a registered lump sum. It is worth noting that the concept of economic activity has not been defined in the Lump-sum Act. The legislator uses the concept of economic activity from the PIT Act. The above solution can certainly be considered correct as it does not introduce two different definitions, which could make it difficult to tax business activity with income tax.
When can we choose taxation in the form of a registered lump sum?
Pursuant to Art. 6 sec. 4 of the Lump-sum Act, taxpayers pay a lump-sum in the tax year on recorded revenues from the activities referred to in paragraph 1. 1 if:
in the year preceding the tax year:
a) obtained revenues from this activity, carried out exclusively independently, in the amount not exceeding EUR 2,000,000 or
b) obtained revenues only from activities conducted in the form of a company, and the sum of revenues of the partners of the company from this activity did not exceed the amount of EUR 2,000,000,
they start to operate in the tax year and do not benefit from taxation in the form of a tax card - regardless of the amount of income.
In addition, if the taxpayer in the year preceding the tax year ran the business independently, as well as in the form of a company, in the tax year, the taxpayer pays a lump sum on recorded revenues:
- separately from activities carried out independently and separately from activities carried out in the form of a company, if it meets the conditions set out in paragraph 4 point 1, or
- from activities performed independently, when it meets the condition specified in sec. 4 point 1 lit. and, and the activities carried out in the form of a company - when it meets the condition specified in paragraph 4 point 1 lit. b.
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The lump sum on recorded revenues may also be paid by taxpayers who, in the year preceding the tax year, operated independently or in the form of a company, the revenues from which were taxed only in the form of a tax card or for part of the year were taxed in the form of a tax card and for part of the year on general terms , and the total revenues in the year preceding the tax year did not exceed the amount of EUR 2,000,000; in these cases, income taxed in the form of a tax card is calculated only on the basis of issued invoices or bills. These taxpayers shall apply mutatis mutandis the provisions of paragraph 1. 4 and 5.
The euro limit is converted into the Polish currency at the average euro exchange rate announced by the National Bank of Poland on the first working day of October of the year preceding the tax year. This year, this day is October 1, 2020. The average euro exchange rate announced by the National Bank of Poland on that day is included in table No. 192 / A / NBP / 2020, according to which it is PLN 4.5153.
Therefore, by making the conversion, the lump sum on the revenues recorded in 2021 will be able to be paid by taxpayers who continue their business activity, who in 2020 will obtain revenues from activities conducted independently, not more than PLN 9,030,600, or in the form of a company, and the sum of the revenues of all partners will not exceed this amount.
To sum up, small economic activities that do not achieve high revenues and do not have a complicated structure are taxed with a lump sum.
Loss of the right to a lump sum and the inability to use a given form of taxation - negative premises
Taxation in the form of a lump sum on recorded revenues is e.g. dependent on the absence of negative premises referred to in art. 8 of the Lump-sum Act. Pursuant to the aforementioned provision, taxation in the form of a lump sum on recorded revenues, as a rule, does not apply to taxpayers:
paying tax in the form of a tax card on the terms set out in Chapter 3 (of the Act),
who, on the basis of separate regulations, benefit from temporary income tax exemption,
earning revenue in whole or in part from:
activities in the field of buying and selling foreign exchange values,
activities in the field of trade in parts and accessories for motor vehicles,
producing products subject to excise duty, on the basis of separate regulations, with the exception of the production of electricity from renewable energy sources,
undertaking activities in the tax year after changing the activities performed:
independently for business conducted in the form of a partnership with a spouse,
in the form of a partnership with a spouse for activities conducted independently by one or each of the spouses,
independently by the spouse for the activity conducted independently by the other spouse
- if the spouse or spouses before the change paid income tax on the basis of general principles for this activity,
The analysis of the provisions of the Lump-sum Act shows that, during the tax year, taxpayers running a business may lose the right to pay tax on this account in the form of a lump sum on recorded revenues. In this case, from the date of losing the right to a lump sum, they are obliged to pay income tax according to the tax scale. Thus, a taxpayer who has lost the right to taxation in the form of a lump sum taxes its activities in accordance with the principles set out in the Personal Income Tax Act. As we have already presented in the example, taxpayers have a problem with determining when they are obliged to change their taxation.
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As soon as the taxpayer is excluded from the lump sum from registered revenues, the taxpayer is obliged to change the form of taxation.
The date of obtaining the first income from the activity excluded from lump-sum taxation is the date from which the entrepreneur switches to the general rules.
The rule resulting from Art. 14 sec. 1c of the PIT Act is that the date on which the income arises is the date of delivery of the item, sale of the property right or performance of the service or partial performance of the service, no later than the day:
- issuing an invoice or
- payment of receivables.
Thus, the date on which the revenue arises is the date on which the item is delivered, the property right is sold, or the service is rendered or the service is partially performed. In our case, the date of the service is May. The invoice is issued and the amounts due are settled at a later date. So on the day the service is performed, an obligation arises to establish a book of revenues and expenses and to calculate advance payments according to general rules.
In the month in which the tax rules changed, the revenues should be divided into two parts (in our case it is May). Transactions before the change are taxed at a flat rate. However, all revenues obtained from the date of change are taxed according to general rules. The fact of reporting the economic activity in the field of excluded revenues (without obtaining these revenues) does not result in the loss of the right to the lump sum.
The obligation of physical inventory and the loss of the right to a lump sum
Pursuant to § 24 sec. 1 of the regulation on the tax book of revenues and expenditures, taxpayers are obliged to draw up and enter in the book a physical inventory on the day of losing the right to pay a registered lump sum.
As it results from § 26 sec. 1 and paragraph 4 of the regulation on the tax book of revenues and expenses, the taxpayer is obliged to evaluate the materials and commercial goods covered by the physical inventory at purchase or acquisition prices or at market prices from the date of the inventory, if they are lower than the purchase or acquisition prices; the inventory of semi-finished products (semi-finished products), finished products and shortages of own production is valued at manufacturing costs, and utility waste, which lost its original value in use in the course of activity, is valued at the value resulting from the estimation taking into account their suitability for further use. The taxpayer is obliged to make the valuation at the latest within 14 days from the date of completion of the physical inventory.
What tax declarations are submitted by a taxpayer who has lost the right to tax in the form of a lump sum?
After the end of the tax year, a taxpayer who has lost the right to a lump sum and has been taxed on general principles is required to submit two tax returns. He should submit PIT-28 by the end of January of the following year, in which he will settle lump-sum taxable income. By 30 April of the following year, the taxpayer also submits PIT-36 for revenues obtained after changing the form of taxation.