Correction of input VAT during business suspension

Often times, entrepreneurs running a business are forced to suspend it, whether due to financial or personal problems. The period of suspension may vary from 30 days to 24 months. The prerequisite for this activity is not hiring employees.

As you know, at the beginning of 2013, the provisions on the so-called bad debt relief. According to these regulations, in the event of failure to settle the amount due resulting from the invoice documenting the delivery of goods or services in the territory of the country within 150 days from the date of its payment specified in the contract or on the invoice, the debtor is obliged to correct the deducted amount of VAT resulting from this invoice, in the settlement for the period in which the 150 day has elapsed, counting from the date of payment specified in the contract or on the invoice.

In the event of partial payment of the amount due within 150 days from the date of its payment deadline specified in the contract or on the invoice, the correction applies to the input tax for the outstanding portion of the amount due.

In connection with the above, the question arises - is the taxpayer obliged to correct VAT in connection with the bad debt relief during the suspension of operations?

Well, as it results from Art. 99 sec. 7a of the VAT Act, in the event of suspension of economic activity pursuant to the provisions on freedom of economic activity, taxpayers are not required to submit VAT returns for the accounting periods covered by this suspension.

It is worth emphasizing, however, that the exemption from submitting VAT returns during suspension does not include:

• taxpayers making intra-Community acquisitions of goods;

• taxpayers importing services or purchasing goods - to the extent that they are taxpayers;

• settlement periods in which the suspension of business activity did not apply to the full settlement period;

• accounting periods for which the taxpayer is obliged to settle the tax on the performance of taxable activities and for which it is obliged to correct the input tax.

To sum up, the taxpayer, despite the suspension of business activity, is obliged to submit a VAT return for the period in which the 150 day has elapsed from the date of payment of this receivable and correct the input VAT. The buyer who does not pay the receivables to contractors on time is obliged to independently control the period in which he will be obliged to correct the VAT.