Advance payment during the suspension of business activities

Service-Tax

It happens, especially with companies operating seasonally, that an advance is accepted during the suspension of business activity. The general rules regarding the suspension of activities stipulate that during its duration the entrepreneur may not perform activities related to the basic profile of the activity, or generate current income from this activity. So, during the suspension of business activity, is it possible to accept advances or down payments on sales in future periods in which the activity will be suspended (e.g. the beginning of the season) is allowed?

What activities are allowed during the suspension of business activity?

The legislator allowed a person running a business to undertake a certain range of activities that he may undertake despite the temporary cessation of running a business. What activities can therefore be performed during the suspension of business activity? The answer is provided by the Freedom of Economic Activity Act, namely Art. 14a section 4 points 1-7.

 

Art. 14a sec. 4 of the Act on the freedom of economic activity

"During the period of suspension of economic activity, the entrepreneur:

1) has the right to perform all activities necessary to maintain or secure the source of income;

2) has the right to accept receivables or the obligation to settle liabilities arising before the date of suspension of business activity;

3) has the right to sell its own fixed assets and equipment;

4) has the right or obligation to participate in court proceedings, tax and administrative proceedings related to economic activity performed before the suspension of economic activity;

5) performs all obligations prescribed by law;

6) has the right to earn financial income, also from activities carried out before the suspension of economic activity;

7) may be inspected on the terms provided for entrepreneurs conducting business activity. "

 

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Therefore, it was allowed, inter alia, to perform activities that are considered necessary to maintain or secure the source of income.

Necessary activities and suspension of business activity

Going beyond the scope of “necessity” would render the act illegal during the suspension.Achieving possible revenues that go beyond the financial ones or those obtained from the activity conducted even before its suspension would also violate the provisions of the Act.

Is it legal to receive an advance payment while your business is suspended?

The answer to the above question is especially important for people who run seasonal activities, e.g. renting summer shelters or organizing trips. It is natural that in such cases advance payments are accepted for the future performance of services. This is mainly due to the company's management policy based on reservations, which is absolutely aimed at securing the achievement of seasonal revenues.

Advance payment during the suspension of business activity as preservation and security of the source of income?

Receipt of an advance payment on the basis of income tax does not generally give rise to a tax obligation (Article 14 (3) (1) of the Act on Personal Income Tax). On the other hand, on the basis of VAT, the reservation payment made is an income and generates a tax obligation. Of course, this only applies to active VAT payers who, when accepting the advance, will be required to submit a VAT-7 / VAT-7K declaration and pay the tax.

The advance payment is not returnable and - as it results from business practice - reduces the risk of canceling the service. For the seller, it is therefore a form of securing the achievement of revenues in future periods - the season.

Advance payment during the suspension of business activity and the tax authorities

The individual interpretation issued by the Director of the Tax Chamber in Bydgoszcz on April 9, 2013 (ITPB1 / 415-56 / 13 / WM), which stated:

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"(...) in the case of suspension of business activity, in which the Applicant does not provide accommodation and short-term accommodation rental services and does not generate current income from non-agricultural business activities - no tax is collected in the form of a tax card for the entire period of suspension in 1/30 of the monthly fee for each day of suspension.

Accepting reservations for the season in which the Applicant rents holiday homes and accepting advance payments for such reservations can be considered as activities necessary to maintain or secure the source of income, because these are undoubtedly activities aimed at full use of the places owned by the Applicant during the season. accommodation.

Therefore, the activities described in the application, undertaken by the Applicant during the suspension of economic activity, do not require him to undertake economic activity and pay tax in the form of a tax card. "

confirms that accepting an advance payment during the suspension of business activity may be lawful, but this will be mainly determined by the nature of the payment accepted and the nature of the business.