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Documenting expenses with internal evidence

The prerequisite for including a specific expense as tax deductible costs is the demonstration of a causal relationship between the cost incurred and the income obtained, or the preservation or securing of the source of income. However, in order to be able to deduct costs, the taxpayer must gather appropriate evidence of costs incurred. As a rule, these will be invoices, however, the legislator also provided for documenting expenses with internal evidence.

Documenting expenses with internal evidence in practice

Entries in the KPiR are made in Polish and in the Polish currency, in a careful, legible and permanent manner, based on correct and reliable evidence (§ 12 (1) of the Regulation on the KPiR). At the same time, § 14 of the Regulation on the KPiR indicates that the following documents may be prepared to document entries in the book regarding certain costs (expenses):

dated and signed by persons who made the expenditure directly (internal evidence),
specifying:

when purchasing - product name and quantity, unit price and value,
and in other cases - the subject of economic operations and the amount of cost (expenditure).

This evidence may only relate to:

purchase, directly from a domestic producer or breeder, plant and animal products, unprocessed or processed industrially, if the processing involves ensiling plant products or milk processing or slaughtering slaughter animals and post-slaughter treatment of these animals;
purchase from the population classified in the Polish Classification of Products and Services (PKWiU) raw materials for herbal plants and wild forest herbs, berries, forest fruits and forest mushrooms (PKWiU ex 02.30.40.0);
the value of plant and animal products from the taxpayer's own cultivation or breeding;
purchase of auxiliary materials in retail trade units;
costs of subsistence allowances and other charges for the time of employees' business travel and the value of allowances for business travel of persons running a business and persons cooperating with them;
purchase from the public of post-consumer waste constituting secondary raw materials, excluding the purchase (purchase) of non-ferrous metals and cars and their components intended for scrap;
expenses related to payments for rent, electricity, telephone, water, gas and central heating, in the part attributable to business activities; the basis for drawing up this proof is a document covering all fees for these purposes;
court and notary fees;
stamp duty payable with marks of this tax until December 31, 2008;
expenses related to parking the car in a situation where they are supported by documents that do not contain the data referred to in § 12 section 3 point 2; the basis for issuing an internal ID is a ticket from a parking meter, a coupon, a single-use ticket attached to the drawn up ID.

Internal evidence regarding the settlement of employees' business travel costs and the value of per diems for business trips of business persons and persons working with them should contain at least the following data: name and surname, purpose of the trip, name of the place of destination, number of hours and days of being on a business trip (date and time of departure and return), rate and value of the allowances.

Below we present the most common problems related to documenting internal evidence.

Documenting expenses with internal evidence and activity in the apartment

The use by the taxpayer of his own dwelling for the purposes of his business, by excluding some or all of it from the residential function, is the basis for including the expenses related to the maintenance of this dwelling in the costs of this activity.

Expenses related to payments for rent, electricity, water, gas, telephone and heating in the part attributable to business activities should be documented with internal evidence. The basis for drawing up this proof is a document covering all fees for the above-mentioned purposes. In this case, these will be VAT invoices, bills, rent books. Each internal document should have the date, signature of the person who made the expenses, the name of the purchased goods, quantity, unit price and value, and in a situation other than the purchase of goods - the subject of the business operation and the amount of the cost.

Confirmation of this position can be found in the decision of the Head of the First Tax Office in Łódź-Bałuty (No. I USB I-2 / 415-31 / 06) issued on March 28, 2006, which reads:

(...) expenses related to the operation of the premises, referred to in the discussed case, in the part in which they are attributable to economic activity, constitute tax deductible costs. Documents with the date and signatures of persons who made the expenses directly (internal evidence), specifying: upon purchase - the name of the goods and the quantity, unit price and value, may be prepared for the documentation of entries in the tax book of revenues and expenditures regarding certain (costs) expenses, and in other cases - the subject of economic operations and the amount of cost (expenditure).

The evidence mentioned may only relate to expenses related to rent, electricity, telephone, water, gas and central heating, in part related to economic activities; the basis for drawing up this proof is a document covering all fees for these purposes. In summary, if the expenses related to the operation of the premises in the part attributable to economic activity constitute 10 percent. the amount covering the entire service charges for the premises, they constitute in this part tax-deductible costs (...).

Example 1.

Mr. Jan runs a business consisting in creating a website. He adapted one of the rooms in the apartment to his workplace. After the calculation, it turned out that 50% of the apartment is used for business purposes. Service charges for the use of the apartment are PLN 500. In such a situation, Mr. Jan should prepare an internal document for the part of fees attributable to business activity, i.e. PLN 250.

Purchase of agricultural produce and documenting expenses with internal evidence

As indicated, internal evidence may be prepared, inter alia, to document the purchase, directly from a domestic producer or breeder, of plant and animal products, not processed industrially or processed industrially, if the processing involves ensiling of plant products or milk processing or slaughter of slaughter animals and their post-slaughter processing.

In the case of purchases from farmers, the buyer should most often prepare the so-called VAT RR invoice documenting the purchase. However, it very often happens that a farmer does not provide personal data enabling the correct issuance of a VAT RR invoice, it will be correct to include the purchase cost in the tax revenue and expense ledger on the basis of internal evidence.

In such a situation, the taxpayer running the KPiR may document the purchase of agricultural products from the farmer with internal evidence.

This position is confirmed by the tax authorities, including Director of the Tax Chamber in Bydgoszcz in an individual interpretation of April 2, 2009, ref. No. ITPB1 / 415-56a / 09 / AK, where we can read:

(...) however, it is permissible to prepare internal evidence regarding the purchase of plant and animal products directly from a domestic producer or breeder, not processed industrially or processed by an industrial method, if the processing involves ensiling plant products or milk processing or slaughtering animals and post-slaughter treatment of these animals. However, such evidence should meet the requirements set out in the above-mentioned the provisions of the regulation (...).

The internal proof is issued by the buyer. It does not have to contain the data of the farmer-seller, but - as emphasized by the tax authorities - it must contain the data required by the Regulation on the KPiR (§ 14 (1) of the Regulation).

Internal ID template