Expenses incurred to fight the coronavirus - are they BUY?

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Due to the prevailing situation, entrepreneurs have to make purchases for purposes related to the pandemic. Despite the difficult situation, they should be accounted for in accordance with the law. Thus, the taxpayer must show that the expenses incurred to fight the coronavirus are related to income. Tax authorities can check entrepreneurs' settlements in a few months.

Tax deductible costs

Pursuant to Art. 22 sec. 1 of the Personal Income Tax Act - hereinafter referred to as the PIT Act - tax deductible costs are the costs incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in art. 23.

It follows from the above provision that tax deductible costs are all costs, and therefore directly and indirectly related to obtaining revenues, with the exception of the costs listed in art. 23 above the law. However, in order for a given expense to be classified as tax deductible costs, the taxpayer must demonstrate its connection with the conducted activity and that its incurring had or could have had an impact on the amount of the income obtained, or on the preservation or securing of the source of this income.

Personal protective equipment, disinfectants for employees

In order to ensure the safety of their employees, entrepreneurs started purchasing personal protective equipment and disinfectants from the beginning of the pandemic. The above expenses were classified as tax deductible costs. At this point, it should be emphasized that none of the provisions of the PIT Act excludes from tax deductible expenses expenses for protection measures for employees during an epidemic. Thus, qualifying the above expenses as tax deductible costs, we must apply the general principles resulting from Art. 22 of the PIT Act. If the above-mentioned expenses are classified as tax deductible costs, their relationship with the revenues seems obvious. It was the situation that forced employers to secure their employees so that they could perform their work. Of course, remember that these expenses should not be personal expenses.

Example 1.

An entrepreneur running a self-service store in March 2021 purchased protective equipment for employees, such as masks, gloves and disinfectants. The above purchases are necessary for the entrepreneur to continue to run the store. In addition, they protect workers from contamination in the workplace. So these expenses are related to the conducted activity and the entrepreneur can qualify them as tax deductible costs?

Expenses incurred to fight the coronavirus increase the likelihood of employees retaining the ability to perform work, which directly affects the ability to earn income. Obviously, purchases serve the personal goals of employees, but in the prevailing situation, the employer, when handing over protection measures, is guided by the interests of the company.

In the case of an entrepreneur running a sole proprietorship, there may be a problem with the settlement of the above expenses. The tax authorities may recognize the expenses as an investment in their own health. Purchasing disinfectants from such companies can therefore be considered a personal expense. It should be emphasized that every person cares about their health, regardless of whether they are entrepreneurs or not.

Expenses incurred to fight the coronavirus and the purchase of equipment for remote work

Pursuant to Art. 3 sec. 1 of the Act of March 2, 2020 on special solutions related to the prevention, prevention and combating of COVID-19, other infectious diseases and crisis situations caused by them - hereinafter the COVID-19 Act - in order to counteract COVID-19, the employer may instruct the employee to perform, for a specified period of time, work specified in the employment contract outside the place of its permanent performance. Thus, during a pandemic, employees do not perform their duties in the office, but at home. This type of work is called remote work. Therefore, employees are equipped by the employer with appropriate work tools.

Example 2.

The entrepreneur runs a large accounting office in Kalisz. Due to the pandemic, he decided that most of the accountants would work remotely. In the office, work was carried out on desktop computers. The above means that the employer had to purchase a dozen or so laptops and additional equipment. Can the purchase of equipment be counted as tax deductible costs?

Yes, in this case the situation has undoubtedly forced the entrepreneur to purchase computer equipment that serves his business. Failure to do so could make it impossible to run the office. In such a situation, it is possible that the tax authorities will try to prove that the above-mentioned equipment was also used by employees for private purposes. Such an attempt at interpretation seems to be wrong and difficult to prove. However, employees should be reminded not to upload, for example, games to the computer equipment they receive.

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Internet and electricity as expenses incurred to fight the coronavirus

In order to be able to work remotely, an employee must use electricity and usually the Internet. In practice, he does it on his own.

In the case of the Internet, it is easy to imagine that the employer reimburses the taxpayer for costs, e.g. additional transfer, which is purchased for the duration of the pandemic. In the case of electricity, the matter becomes extremely complicated. The best solution is to pay workers an allowance for the increased electricity consumption. Based on the bills, the employee is able to show how his electricity consumption has increased due to remote work. Such a solution seems safe and defensible in the event of an audit by tax authorities. Moreover, this solution should prevent the employee from claiming that he has generated income.

Accommodation and catering

Pursuant to Art. 52 m of the PIT Act, free from income tax are received or placed at the disposal of the taxpayer:

  • the stopping benefits referred to in art. 15zq of the COVID-19 Act;

  • additional standstill benefits referred to in art. 15zs1 of the COVID-19 Act;
  • accommodation and board services referred to in art. 15x paragraph 3 point 1 of the COVID-19 Act;
  • allowances received under Art. 31zy3 of the COVID-19 Act;
  • one-off additional stopping allowance referred to in art. 15zs2 of the COVID-19 Act

In the case of benefits related to accommodation and meals, the legislator exempted only benefits provided in a specific situation and to specific entities.

Example 3.

The entrepreneur runs a mail order shop. Despite the pandemic, it increases revenues. Many employees have to commute to work, but the prevailing situation has resulted in a lack of rail and bus connections. The employer decided to provide accommodation for two employees.

In such a situation, the above exemption from Art. 52m of the PIT Act will not apply. The taxpayer will have taxable income. We can of course take advantage of the exemption. Let us recall that pursuant to Art. 21 sec. 1 point 19 of the PIT Act, the value of benefits paid by the employer for the accommodation of employees is exempt from tax. This exemption is available up to the amount not exceeding PLN 500 per month. Moreover, importantly, it applies to employees whose place of residence is located outside the town where the workplace is located, and the taxpayer does not use the tax deductible costs specified in art. 22 sec. 2 points 3 and 4.

In summary, when making various expenses in connection with the coronavirus, we must take into account tax audits and checking activities of tax authorities in the future. The above requires us to properly document the expenses in order to be able to prove their relationship with the revenues later.