The draft amendment to the VAT Act ( so-called SLIM VAT 3) provides for changes to the small taxpayer sales limit to take effect from 1 April 2023 – rather than 1 January 2023, as originally planned.
Council Directive 2006/112/EC (hereinafter: the VAT Directive) of 28 November 2006 on the common system of value added tax (Official Journal of the EU L 347) stipulates that Member States applying an optional scheme shall set a threshold for taxpayers benefiting from that scheme on their territory on the basis of the taxpayer’s annual turnover calculated in accordance with Article 288. This threshold may not exceed EUR 2,000,000 or the equivalent in national currency.
Polish regulations – what is the current situation?
The above possibility is also provided for by the Polish provisions of the Value Added Tax Act (Journal of Laws 2022.931; hereinafter: the VAT Act).
According to the current wording of Article 2 (25) of the VAT Act, a small taxpayer is a taxpayer:
- in which the value of sales (including the amount of tax) did not exceed in the previous tax year the amount expressed in PLN corresponding to the equivalent of EUR 1 200 000,
- who runs a brokerage business, manages investment funds, manages alternative investment funds, is an agent, a commission agent or another person providing services of a similar nature, except for commission – if the amount of the commission or other forms of remuneration for the services provided (including the amount of tax) did not exceed in the previous tax year an amount expressed in Polish zlotys which was the equivalent of EUR 45,000
– whereby amounts expressed in euro are converted at the average exchange rate of the euro announced by the National Bank of Poland on the first working day of October of the previous tax year, rounded up to PLN 1,000.
Fulfilment of the above prerequisites entitles the taxpayer to use the cash method and not, as it is commonly the case, the accrual method, and consequently, also to obtain the right to use quarterly settlements in VAT (with certain exceptions, included later in this article).
What is the cash accounting principle?
Under the cash method, the obligation to pay VAT on an invoice issued arises at the time of receipt of payment for that invoice – as opposed to the accrual principle, in which VAT must be accounted for in the period in which the invoice was issued, regardless of whether the invoice was actually paid.
The provision of Article 21 of the VAT Act describes in detail the cash basis and, in accordance with it, a small taxpayer may choose the settlement method whereby the tax obligation in respect of his supplies of goods and services arises:
- on the date of receipt of all or part of the payment – in the event of making a supply of goods or provision of services to a taxpayer referred to in Article 15, registered as an active VAT taxpayer,
- on the date of receipt of the full or partial payment, not later than on the 180th day counting from the day of the release of goods or the performance of services – in the event that the supply of goods or the performance of services is made to an entity other than specified in item 1
- after prior notification in writing to the head of the tax office by the end of the month preceding the period for which he will apply this method, hereinafter referred to as the “cash method”; receipt of payment in part results in the emergence of tax liability in that part.
- A small taxpayer may resign from the cash method, but not earlier than after the expiry of the 12 months during which he accounted for using this method, after notifying the head of the tax office in writing by the end of the quarter in which he used this method.
- A small taxpayer loses the right to settle tax using the cash method starting from the settlement for the month following the quarter in which he exceeded the amount specified in Article 2, point 25.
Notification of the choice of the cash method and notification on abandonment of the use of this method shall be made on the VAT-R form.
Thus, the main benefit of the cash method may be the reduced number of declarations submitted during the tax year – four declarations instead of twelve, as well as the deferral of the tax payment deadline itself.
A small VAT taxpayer – as indicated above – pursuant to Article 99 (2) and (3) of the VAT Act, is also entitled to quarterly tax settlements.
Pursuant to the VAT Act, small taxpayers who have chosen the cash method submit to the tax office tax returns for quarterly periods by the 25th day of the month following each subsequent quarter.
Quarterly declarations may also be submitted, after prior notification in writing to the head of the tax office, by the 25th day of the second month of the quarter for which the quarterly tax return will be submitted for the first time:
- small taxpayers who have not chosen the cash method;
- taxpayers subject to the flat-rate tax on corporate income referred to in Article 28j of the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2021, item 1800, as amended), if the value of sales (including the amount of tax) in these taxpayers did not exceed in the previous tax year the amount expressed in PLN which is equivalent to the equivalent of EUR 4,000,000, with the conversion of the amount expressed in EUR being made according to the average EUR exchange rate announced by the National Bank of Poland on the first working day of October of the previous tax year, rounded up to PLN 1,000.
However, the Act provides for certain exclusions – so not every small taxpayer will be entitled to quarterly settlements. Pursuant to Article 99 (3a), taxpayers will be deprived of this entitlement:
- registered by the head of the tax office as active VAT taxpayers – for a period of 12 months starting from the month in which the registration was made or
- who, in a given quarter or in the four quarters preceding it, supplied goods referred to in Appendix No. 15 to the Act, unless the total value of these supplies without the amount of tax did not exceed, in any month of these periods, the amount of PLN 50,000 or;
- who, in a given quarter, imported goods in accordance with the principles specified in Article 33a section 1;
- for whom, in the quarter in question, it was found that, contrary to the obligation referred to in Article 19a of the Act of 6 March 2018. – Entrepreneurs’ Law, did not ensure that it was possible to make payment using a payment instrument within the meaning of the Act of 19 August 2011 on payment services at any place where the business activity is actually carried out, in particular on the premises, off the business premises or in a vehicle used for the provision of passenger transport services.
According to the draft amendment to the Act, it has been proposed to change the limit of the value of sales for a small taxpayer to EUR 2,000,000, which is also the maximum possible amount provided for in the provisions of the VAT Directive.
Clearly, therefore, the higher limit will lead to an increase in the group of persons entitled to the status of a small taxpayer and, consequently, to a greater number of taxpayers entitled to use the cash method and quarterly VAT settlements.
In order to convert this limit into the amount corresponding to it in PLN, the average euro exchange rate announced by the National Bank of Poland on the first working day of October of the previous fiscal year should be used, which this year falls on 3 October and amounts to PLN 4.8272.
Consequently, next year’s limit after changes for 2023 will be PLN 9,654,000 and for the amount of EUR 45,000 – PLN 217,000 respectively.
Due to the fact that, at the moment, the draft law is at the stage of consultation with the Law Commission and it is not known in what final form it will be enacted – the above table includes both possibilities for the development of next year’s small VAT taxpayer threshold.