When can the quarterly flat rate be chosen?

Service-Tax

Entrepreneurs who do not obtain too high costs as part of their activities, often decide to tax in the form of a lump sum on recorded revenues. The advantage of such a decision is much lower tax rates than in the case of general rules, because revenues can be taxed even at a flat rate - 3%. To further optimize cash flow, taxpayers can opt for a quarterly flat rate. Let's check who can pay income tax quarterly!

What is the quarterly lump sum?

Each taxpayer is obliged to settle income tax with the tax office.When deciding on a flat rate, the tax base is the income from the business activity, which is not reduced by the tax deductible costs.

Pursuant to Art. 21 sec. 1a of the Act on flat-rate income tax on certain revenues earned by natural persons, entrepreneurs may calculate the flat-rate and pay it to the account of the tax office by the 20th day of the month following the end of the quarter in which the income was obtained. The exception is the lump sum for the fourth quarter. In this case, the deadline for calculating and paying the tax liability is extended until the deadline for submitting the tax return, i.e. by the end of February of the following year.

In practice, a quarterly lump sum means that you pay income tax four times a year (if you start your business, the taxpayer makes three payments in a given year):

  • until April 20 for the first quarter;

  • until July 20 for the second quarter;

  • by 20 October for the third quarter;

  • by the end of February of the following year for the fourth quarter.

Example 1.

Mr. Łukasz started operating on April 1, 2021 and chose a quarterly flat rate for income tax settlements. When will he pay the first amount due to the tax office?

Establishing a company during a quarter does not extend the period for which the quarterly lump sum must be paid. When starting operations on April 1, Mr. Łukasz is obliged to pay the advance for the second quarter by July 20, 2021.

Who can choose the quarterly flat rate?

Pursuant to Art. 21 sec. 1b of the Act on flat-rate income tax on certain revenues earned by natural persons, a quarterly flat-rate may be selected by entrepreneurs who:

  • they started their business, but they did not conduct business in the previous tax year, or

  • in the previous year they had been operating, but the revenues generated did not exceed the amount equivalent to EUR 200,000.

Art. 7 sec. 2 of the Act on flat-rate income tax on certain revenues earned by natural persons:

It does not constitute the commencement of operations in a tax year:

  1. total or partial change of the industry or subject of activity;

  2. change of the articles of association or change of a partner;

  3. inheritance of the enterprise.

Example 2.

Mr. Aleksander has been running a taxable business since 2019 and pays quarterly advances. Due to a significant drop in revenues, it plans to change the industry and thus change the form of taxation to a lump sum in 2021. Will Mr. Aleksander be able to choose a quarterly lump sum if the subject of his activity so far differs from the one taxed with the lump sum?

If the revenues obtained in 2020 exceed the equivalent of EUR 200,000, Mr. Aleksander will not be able to pay the lump sum for quarterly periods.

Taxpayers may choose a quarterly lump sum in 2021 if the sales revenues in 2020 did not exceed PLN 903,060.

The quarterly limit of the lump sum does not include increases or decreases in revenues from the so-called bad debt relief. According to Art. 11 sec. 4 point 2 of the discussed act, the revenues are increased in the event of failure to settle the liability due to the cost invoice. The increase is made in the tax return submitted for the tax year in which 90 days have passed from the date of expiry of the payment deadline specified in the invoice or bill or in the contract. Therefore, it may turn out that the amount of income in the annual tax return for the previous year will exceed the amount of EUR 200,000, and yet the taxpayer will be able to choose the quarterly lump sum in the following year.

Example 3.

In 2020, Mrs. Natalia generated an income of PLN 900,000. Due to the deterioration of financial liquidity, it did not pay the purchase invoice worth PLN 10,000, the payment date of which expired on June 30, 2020. For this reason, in the annual tax return for 2020, it showed an increase in revenues by the value of the outstanding liability. Can Mrs. Natalia choose a quarterly lump sum if the sum of revenues from the annual tax return for 2020 is PLN 910,000?

Yes, because increases in bad debt relief are not included in the income limit for a quarterly lump sum. Therefore, the actual income obtained by Ms Natalia does not exceed the limit of PLN 903,060 (she achieved an income of PLN 900,000 from her activity).

How to report the quarterly lump sum to the office?

When deciding to pay a lump sum for quarterly periods, taxpayers do not have to submit additional declarations to the tax office. Pursuant to Art. 21 sec. 1c of the act on the selection of a quarterly lump sum, taxpayers inform the office only in the annual tax return for the year in which they paid the lump sum quarterly. This means that when deciding on a quarterly lump sum in 2021, it should be reported only in the annual tax return for 2021, which will be submitted in 2022.

Example 4.

Ms Danuta chose the quarterly lump sum in 2020. The first lump sum was paid on April 20 for the first quarter. Should it additionally inform the office about the quarterly income tax payment?

Yes, Ms. Danuta is obliged to inform the tax office about choosing the quarterly lump sum payment. For this purpose, in the annual tax return PIT-28 for 2020, which must be submitted by March 1, 2021 (because February 28 falls on Sunday), he selects the quarterly lump sum.

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How to determine the quarterly lump sum in the PIT-28 tax return?

In the wFirma.pl system, it is possible to generate a PIT-28 annual tax return for an account with a "lump sum" taxation form. This declaration is generated by the tab: START »TAXES» ANNUAL DECLARATIONS, where the option ADD DECLARATION »ANNUAL FLAT INCOME TAX DECLARATION (PIT 28) should be used.

Then, the fact of paying the lump sum for quarterly periods should be marked in part S. "Additional information" by selecting field 189. - "The taxpayer has chosen the quarterly lump sum payment method pursuant to Art. 21 sec. 1a of the Act ”.

 

Details on PIT-28 in the wFirma.pl system can be found in the help article: Annual PIT-28 tax return - how to generate and complete in the system!