Advance payment or payment - how to settle the amounts received for future transactions?


In the course of business activity, there are situations in which the entrepreneur receives the payment even before the service is provided or the goods are delivered. What will be the effect of receiving an amount from a customer on a future transaction - whether it will be a payment or an advance payment - will be discussed in this article. Find out how to settle the amounts received for future transactions!

Nature of receivables received for future sales

A very important verification criterion in terms of the tax consequences that will be imposed on the taxpayer for receiving the amount from the contractor before the sale is made is the nature of the amount received.

Receipt of partial payment before the sale - advance payment

Acceptance by the entrepreneur of partial payment usually takes the form of:

  • advances,
  • down payment,
  • installment,
  • a construction or housing contribution prior to the establishment of a cooperative right to a dwelling or premises for another purpose.

If the taxpayer determines that this is the nature of the amount received from the customer, it will mean that the tax obligation will arise only in relation to the tax on goods and services. Therefore, it is necessary to enter the event (the advance payment received for future sales) into the VAT sales register. Such a record will be created on the basis of an advance invoice issued by the seller.

However, the received part of the amount for the future transaction will not be shown in the KPiR, as the receipt of the advance payment does not create a tax obligation under the PIT Act.

What happens next? Then the customer can transfer the next tranche of the advance payment, which will only result in the need to issue another advance invoice and show the VAT due on this account. In the discussed example, it is assumed that the next advance payment did not cover the entire order.

The final stage is the delivery of the goods or the performance of the service.Only at this point does the income tax obligation arise and thus an entry should be made in the KPiR. It is therefore necessary to issue a final (final advance) invoice. On its basis, the seller shows in the VAT sales register the remaining part of the due tax on goods and services, which was not covered by the advance invoice (s) and shows the sales revenue in column 7 of the KPiR (Sales of goods or services).

Receive full payment before selling: sale or down payment?

However, the situation is different when the entire payment is received before the sale. Then the taxpayer must also determine whether it is simply a payment for the delivery of goods / services that will take place not very far away, or whether it is a 100% advance payment for future transactions.

Specifying the nature is extremely important due to the fact that it affects the determination of the moment when the tax obligation in PIT and VAT arises.

The first option - the amount received is the receipt of payment for the delivery of goods / services

Such a definition means that in relation to the amount received, the tax obligation arises both on the basis of the VAT Act and the PIT Act. Therefore, on the date of receipt of the receivables, entries should be made both in the VAT sales register and in the KPiR (column 7 - Sales of goods or services). A "standard" VAT invoice is then issued for the transaction.

In practice, the events so settled often relate to mail order sales, when the entrepreneur receives the entire amount due from the customer before the shipment of the goods in stock. Then the seller immediately determines that the amount due is for a specific sale and not an advance payment for future transactions.

Example 1.

In May, before sending the goods to the contractor, the entrepreneur received an advance payment from him. The goods were shipped in June. In this situation, the tax obligation under VAT and PIT will arise in the month of receipt of payment, i.e. in May. The entrepreneur will document the transaction by issuing a VAT invoice.

The second option - the amount received is a prepayment, advance payment for the delivery of goods or the performance of services

Receipt of the full payment prior to the delivery of goods or the performance of the service does not preclude this amount from being considered a prepayment or advance payment. Then, the tax obligation in relation to the amount received will arise only on the basis of the VAT Act. On the date of receipt of the payment, the seller should make an entry in the VAT sales register. In order to confirm the receipt of an advance or prepayment, it issues an advance invoice by the 15th day of the month following the one in which the advance was received - a payment for future transactions.

Only when the goods are delivered or the service is provided will a tax obligation arise under PIT. As the advance invoice was issued for 100% of the contract value, the seller no longer issues either a "normal" invoice or a final invoice. It is only necessary to make (on the basis of an advance invoice issued) an entry in the KPiR under the date of the sale in order to show the net income from the completed delivery of goods or the service performed.

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Example 2.

In April, the entrepreneur received a 100% advance payment from the contractor for the service provided. The transaction was made the following month, i.e. in May.

In this situation, the tax obligation in VAT arises in the month of receiving the advance payment, i.e. in April, which means that the entrepreneur is obliged to issue an advance invoice. On the other hand, the entrepreneur shows the net income from sales in May, i.e. in the month of the service, on the basis of an advance invoice that covered the entire transaction.

In practice, the second option is most often used by entities that first receive the order and the amount due for this order, and only then begin to "collect" the goods from the supplier, which means that before the sale to the final recipient is made, quite a long period of time passes. time. At the same time, it is not 100% certain whether the sale will take place at all, as it may turn out that the ordered goods will not be available from the original supplier.

Care should be exercised in determining whether a 100% customer payment received prior to the delivery of goods or service is an advance payment or a principal payment. Appropriate classification is related to the correct indication of the moment when the tax obligation arises. It happens that the tax authorities question the recognition as an advance payment of the amount received for a sale transaction.

Tax authorities explain in their interpretations what to pay special attention to and when the received payment will not be an advance payment. An example summarizing the issue of settling the received amounts for the provision of future benefits is the individual interpretation issued on December 9, 2011 by the Director of the Tax Chamber in Łódź (reference number IPTPB1 / 415-160 / 11-4 / MD), which indicates:

The nature of the payment determines whether the received payment is classified as income or as a prepayment. Contribution considered as tax revenue must be definitive, while prepayment and advance payment are not of this nature due to the possibility of their return each time before the date of performance of the services for which they were paid.

The fact that a given payment is an advance (prepayment) for a specific service that will be performed in the next reporting period must therefore result from the provisions of the concluded contract and should be reflected in the content of the documentation.

(...) Payment in advance for marketing services that will be provided over a period of 3 years constitutes tax income on the date of one of the events provided for in art. 14 sec. 1c - in the case at hand, on the date of issuing the invoice or settling the amount due, depending on which of these events occurred earlier. The amount received, in the amount of 100% of the remuneration, cannot be treated as a prepayment or advance payment for the performance of the service in the future. It is important not what the payment was called, but what its actual nature, i.e. whether it is really an advance payment, or is it permanent and will not be subject to subsequent settlement. Moreover, prepayments and advances according to the dictionary definition are part of the price, and not 100%, which is the case in the case at hand.