Obligatory split payment from November 1st, 2019

The split payment mechanism has been in effect in Poland from July 2018 as an optional method of paying for VAT invoices. An amendment of the relevant bill will come into force on November 1st, 2019. According to the new provisions, the eventuality will become an obligation – at first only in selected industries.

The introduction of mandatory split payment is supposed to considerably reduce the volume of irregularities in sectors that require tightening up of the VAT system.

Split payment 2019

So far, companies (especially in the construction business) have to register sold products and services to pay VAT. As an effect of the new legislation, the buyer will pay the net amount to a private account, and the VAT amount to a designated bank account. Therefore, the service provider won’t be able to freely operate the amount of tax, as it used to be.

The reason for the change is the need to remove two existing mechanisms: reverse charge for deliveries and services and joint liability. They will be replaced by the mandatory split payment scheme, first for sectors involving construction, electronic and automotive services as well as for fossil fuel and noble metals traders. This will involve new obligations, including the risk of sanctions, but we can also expect some improvements.

Split payment step by step

1. Entrepreneur A provides a service to entrepreneur B.
2. Entrepreneur B makes one transfer with a split payment message.
3. The bank splits the transfer into two separate accounts.
4. Individual account: Entrepreneur A receives only the net payment for the service.
5. VAT account: the amount of VAT is frozen until the entrepreneur A settles the tax, entrepreneur A has limited access.

What to keep in mind?

First of all, the necessity to use the split payment method applies only for transfers for an amount higher than PLN 15,000. You can still complete transactions for the lower amount traditionally – in this case, the split payment is only an alternative.

The taxpayer has a new responsibility, notably reporting the use of a split payment method. If they fail to do so, the seller may get a financial penalty amounting to 100% of the receipt tax. On special occasions, they may also be fined with 720 daily rates (the buyer) and with 180 daily rates (the seller).

On the other hand, the new law provides for some incentives for taxpayers who decide to use the split payment mechanism. Apart from the already mentioned suspension of the principle of joint liability, businesspeople can expect:

• faster surplus VAT returns (usually 60 days, 25 days with a split payment method);
• no use of increased interest on tax arrears;
• no imposing of an extra fiscal responsibility (resulting from noticed oddities in paying the tax).

Accessibility of funds on the VAT account

The funds on the VAT account will be available for use, as before, to a limited extent, mostly to settle VAT, as well as liabilities to the Treasury:

• income tax,
• excise,
• customs,
• contributions to the Social Insurance Institution (ZUS).

However, if the amount of liabilities is lower in a reference period, the taxpayer can request the surplus amount to be transferred to a bank account of their choosing. According to the bill, the Tax Office has to decide within 60 days from the date of submission. The decision may be reviewed.