Correction of costs in the tax book of revenues and expenses
Pursuant to the provisions of the Personal Income Tax Act, by the end of 2015, a taxpayer who fails to settle its liabilities towards contractors within certain deadlines is required to adjust costs. However, the mere need to make a correction is not such a big problem - although, of course, it is associated with the obligation to pay a higher income tax. The problem is that the regulations do not fully regulate the ways of fulfilling this obligation and do not explain the basic dilemmas of taxpayers. From 2016, however, there will be no more doubts in this matter, because the obligation to make cost adjustments ends with the new year.
Cost correction until the end of 2015 - deadlines
Art. 24d paragraph. 1 and 2 of the PIT Act. Taxpayers, when they receive invoices or bills, even with a distant payment date, include them in their books on an ongoing basis. In a situation where the amount due resulting from the purchase documents is not settled within the deadlines specified in the act, it will be necessary to make an adjustment by reducing the costs incurred or (when the value of costs proves insufficient) to increase revenues.
The moment of making the correction depends on the payment date indicated on the cost document. If the deadline is shorter than 60 days, the taxpayer will be required to correct entries in the ledger on the day on which the 30 days from that date expire. However, if the payment deadline exceeds 60 days, the correction will become obligatory 90 days after the expense is included in the costs.
The correction of costs must be recorded in the tax book of revenues and expenses. The basis for its accounting should be evidence of a reduction in costs or an increase in revenues, prepared in accordance with the guidelines contained in the regulation of the Minister of Finance on keeping a tax book of revenues and expenses.
The document on the basis of which the correction will be posted must contain at least the date of issue and the month of reducing costs or increasing revenues, indication of the accounting document which shows the outstanding amount (invoice, bill or - in the absence of such - an agreement or other document) , the amount by which the tax base and the signature of the issuer will be adjusted.
After creating the document, the taxpayer should enter the value of the correction into the tax revenue and expense ledger - such entries should be made in red or the amount should be preceded by a minus sign. Although the regulations do not indicate in which columns the values of the correction should be entered, the most reasonable thing seems to be to reduce the expenditure in the column in which it was previously entered - i.e., for example, column 10 for the purchase of commercial goods and basic materials, or 13 for other expenses related to business activities. If, however, it is necessary to increase the value of revenues, entries are most often made in plus in column 8 - other revenues.
It may of course happen that the amount of costs in a given column is not enough to make a correction, even though the global value of expenses incurred in a given month will exceed the corrected amounts. In this case, a negative value may appear in the selected book column.
However, the regulations specify the exact dates by which the taxpayer should make the correction. Pursuant to the PIT Act, there are two methods to choose from - making individual entries on a regular basis, on the day on which the previously indicated deadline passes, or collectively at the end of the month.
The rules seem to be sufficiently clear on how and when to make corrections. Unfortunately, not everything is so obvious.
As indicated earlier, the taxpayer may make adjustments within a month on the day when the need arises to adjust the amount of costs. The basic method is to reduce costs - only when their amount turns out to be insufficient, the entrepreneur increases his income. However, making adjustments during the month, it is difficult to predict what the total cost will be in that period and whether any increase in revenues will therefore be a necessity.
It seems that the solution in this case may be the second solution suggested by the act - that is to make a correction in one amount at the end of the month. However, even in this case, the cumulative summary document must be produced on the basis of the minor evidence produced for the individual corrections throughout the month. So also in this case, the taxpayer makes a correction in the middle of the month, when he does not really know the actual amount of costs incurred in a given period.
In such a situation, the National Tax Information proposes to determine the value of costs in the month up to the day on which the correction is made and - if necessary - to reduce costs to this limit. The remaining cost adjustment should be recognized as an increase in revenue. However, such a procedure is inconsistent with the provisions of the PIT Act, in which it is clearly indicated that revenues should be increased only when the monthly amount of costs is insufficient to make a correction.
The solution recommended to entrepreneurs who are afraid that the correction will exceed the amount of costs at their disposal in a given month is to forecast the potential amount of these expenses. Perhaps then it will not be necessary to increase the costs. However, such a solution has one drawback - in most cases it is impossible to determine with certainty what costs will actually be incurred.
It is also worth noting that the increased revenue due to the correction of unpaid costs cannot be reduced at a later time. The PIT Act allows for the re-correction of costs, at the time of payment of the previously corrected receivable. Then it is also possible to include it in costs and thus reduce the tax base. However, the act does not provide for the possibility of reducing the previously increased revenues.
End of cost adjustment from January 2016.
Any doubts in this matter will disappear with 2015. Signed in August this year. amendment of the provisions of the Tax Code and certain other acts repealing Art. 24d of the Income Tax Act. The repeal of this provision means that entrepreneurs will no longer have to reduce tax deductible costs by expenses not paid on time, i.e. make cost adjustments. The new regulations will apply from January 2016.
It is worth adding that taxpayers who will make cost adjustments by the end of 2015 will be able to include the previously adjusted expenses again in costs after they have been paid - also when the payment is made after January 1, 2016.