Advance payment at the buyer - how to book it?

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The purchase of goods or services is often preceded by an advance payment. Entrepreneurs usually receive an invoice when making an advance payment. This makes them doubt whether they can include such an invoice as costs and deduct VAT from it.

The institution of the advance payment has not been defined in tax or civil law. If it has been paid by one of the parties to a legal transaction, it will be credited towards future benefits.

The condition for recognizing an expense as a tax deductible cost is the existence of a cause-and-effect relationship between it and the achievement of income, i.e. demonstrating that the expenditure contributes to the creation or increase of tax income. As it results from this provision, all expenses incurred are tax deductible costs, excluding those stipulated in the Act, used to obtain income.

The provisions of the PIT Act do not directly prohibit including advance payments as tax costs.

Advance payment at the buyer for a good or service is not included in the catalog of expenses not recognized as costs, however, the tax authorities have developed a unified position according to which a company that makes an advance payment for future deliveries of goods (services) should not include this expense as costs companies.

We can find such a position, among others in the individual interpretation of the Director of the Tax Chamber in Katowice of March 9, 2011, file ref. IBPBI / 1 / 415-1246 / 10 / RM, where we can read:

(...) the Personal Income Tax Act does not contain a definition of an advance payment; it is therefore assumed, according to the popular dictionary of the Polish language (edited by prof. Bogusław Dunaj, Wilga Publishing House), that the advance payment is part of the money paid or paid towards something. However, it should be noted that not every advance payment of a specific amount means a payment (advance payment), which may constitute a tax deductible cost of non-agricultural business activity. The nature of the receivable paid as a tax deductible cost is qualified as a tax deductible cost. In this context, it should be noted that, as a rule, advance payments, as payments that are not definitive (due to the possibility of returning them each time before the date of providing the services for which they were paid), cannot constitute tax deductible costs (...).

Advance payment in PKPiR

As indicated, the advance payment made by the buyer for the delivery of materials or the provision of services does not constitute a tax deductible cost. However, the taxpayer may include it in the PKPiR in columns 15 and 16. As it follows from point 15 of the explanations to the tax book, included in Annex 1 to the PKPiR regulation, column 15 is free. You can enter here other economic problems, apart from those listed in columns 1-13. On the other hand, the column 16 of the Comments is intended for entering comments as to the content of the entries in columns 2-15. It can be used, among others to enter collected advances.

Thus, although there is no such obligation, a taxpayer paying an advance for a future delivery may record this fact in the tax book (entering the amount of the advance payment in column 15, and information about this advance in column 16).

Advance payment at the buyer and VAT

According to the general rule set out in Art. 86 sec. 10 of the VAT Act, the right to reduce the amount of tax due by the amount of input tax arises in the settlement for the period in which the tax obligation arose in relation to the goods and services purchased or imported by the taxpayer, but in order for the VAT deduction to be made, it is necessary to receive an invoice . It is also important that the legislator stipulated that the deduction may not be made earlier than in the declaration for the accounting period (month / quarter) in which the taxpayer received the invoice.

Therefore, three parameters determine the date of deduction of the input tax from the invoice received from the domestic contractor who taxed its sales:

  • a tax obligation has arisen in relation to the purchased goods and services,

  • there was an actual purchase of these goods and services or the provision of services,

  • the taxpayer is in possession of an invoice documenting the transaction.

However, according to the general rule contained in Art. 19a paragraph. 1 of the VAT Act, the tax obligation arises when the goods are delivered or the service is performed.

In addition, if, before the service / delivery of the goods, all or part of the payment has been received, in particular prepayment, advance payment, down payment or installment, the tax obligation arises upon its receipt, in relation to the amount received.

Therefore, the taxpayer has the right to deduct VAT from the paid advance invoice if it gives rise to a tax liability for the supplier.

This position is also confirmed by the tax authorities, an example of which may be the individual interpretation of the Director of the Tax Chamber in Warsaw, ref. IPPP1 / 4512-660 / 16-2 / MK, from October 28, 2016, where we can read:

(...) Therefore, bearing in mind the aforementioned provisions of law and the presented description of the case, it should be stated that due to the fact that the tax obligation with the Seller for the advance payment towards the Lease Agreement and the Preliminary Sales Agreement was established in May 2016, and The applicant received an invoice documenting the above-mentioned advance payment in May 2016, the Applicant has the right to deduct the input tax included in the invoice documenting the advance payment towards the Lease Agreement and the Preliminary Sales Agreement in May 2016 - in accordance with Art. 86 sec. 10, sec. 10b point 1 and sec. 10c of the act. However, if the interested party does not reduce the output tax by the input tax resulting from the above-mentioned invoices in this period (i.e. for the month of May 2016), it may reduce the amount of tax due by the amount of input tax resulting from the invoice in question in the tax return for one of the next two settlement periods, i.e. June 2016 or July 2016. in accordance with Art. 86 sec. 11 of the Act (...).