Small VAT and PIT taxpayer and application to the tax office

Entrepreneurs who have the status of a small taxpayer can take advantage of many privileges. These include: the possibility of a one-time depreciation of assets, quarterly settlement of income tax or quarterly submission of JPK_V7K. Who is a small VAT and PIT taxpayer? What if the entrepreneur loses the status of a small taxpayer during the year? How often should you settle accounts with the office and, above all, from when should there be changes in the accounting?

Small PIT taxpayer

Pursuant to Art. 5a point 20 of the PIT Act, a small taxpayer on the basis of income tax is an entity in which the value of gross sales revenues (including VAT) in the previous tax year did not exceed EUR 2,000,000 converted into PLN at the average EUR exchange rate of the National Bank of Poland on the first working day of October the previous tax year. In 2020, compared to previous years, the limit increased by EUR 800,000 (from EUR 1,200,000 to EUR 2,000,000).

The amount of the limit of the small taxpayer in PIT in 2020 after conversion into PLN was 8,747,000, while in 2021 the limit is PLN 9,031,000. A small PIT taxpayer has the option of settling accounts with the tax office for income tax on a quarterly basis. Therefore, the advance tax is calculated and paid 4 times a year. The liability resulting from the advance for the income tax is paid by the taxpayer by the 20th day of the month following the quarter to which it relates.

Example 1.

Ms Małgorzata runs a sole proprietorship. In 2020, the value of revenues, including VAT, did not exceed PLN 8,747,000.Is Mrs. Małgorzata a small taxpayer and can she calculate an advance income tax on a quarterly basis?

Yes, due to the fact that Małgorzata did not exceed the limit of PLN 8,747,000 in 2020, she may use the privileges of a small PIT taxpayer in 2021 and calculate advances for income tax on a quarterly basis.

Small VAT taxpayer

Article 2 (25) of the VAT Act indicates that a small VAT payer is an entity with which:

• the value of sales (including VAT) did not exceed the amount of EUR 1,200,000 in PLN in the previous tax year;
• the amount of commission or other forms of remuneration for the services rendered (including VAT) did not exceed in the previous tax year the amount corresponding to the equivalent of EUR 45,000 expressed in PLN - in the case of a brokerage firm, investment fund manager, alternative investment fund manager, agent, contractor or other person providing services of a similar nature, with the exception of consignment.

The conversion of amounts expressed in euro is made according to the average euro exchange rate announced by the National Bank of Poland on the first working day of October of the previous tax year. The resulting amount is rounded to PLN 1,000.

A small VAT taxpayer has the right to settle tax on goods and services on a quarterly basis, which means that he submits the JPK_V7K file by the 25th day of the month following the quarter to which it relates.

Additionally, it is possible to use the cash-based method of settling VAT, in the case of which, as a rule, the tax obligation arises upon receipt of payment for goods or services. You can read more about the VAT checkout method in the article: Checkout method and quarterly VAT settlement.

Example 2.

Mr. Paweł has been running a sole proprietorship since January 1, 2019. The value of sales in 2019 did not exceed EUR 1,200,000, which in PLN gives the amount of PLN 5,248,000. Can Mr. Paweł submit a quarterly JPK_V7K file in 2020?

Yes, due to the fact that the sales limit in 2019 has not been exceeded, Mr. Paweł can make quarterly settlements from January 2020. In order for the quarterly settlement of VAT to be possible, the taxpayer must be registered in VAT for at least 12 months. More information about the conditions that must be met in order to make quarterly VAT settlements can be found in the article: Quarterly VAT - who will be able to settle quarterly in 2020.

Loss of the status of a small taxpayer

Small VAT and PIT taxpayers gain the possibility of quarterly settlements in both income tax and VAT. Exceeding the limits entitling taxpayers to use quarterly settlements results in the obligation to switch to the payment of taxes and send the JPK_V7M file on a monthly basis. Different monthly billing initiation dates apply to both taxes.

Consequences on the basis of PIT

Entities that during the year exceed the limit entitling to be a small PIT taxpayer are required to discontinue quarterly settlements from the year following the year in which the limit was exceeded. Therefore, even if the exceedance takes place at the beginning of the year or after 6 months - it will not matter, because the taxpayer will start the monthly calculation of the advance payment from January of the following year.

Example 3.

Mr. Artur runs a business. In May 2019, he exceeded the limit entitling him to quarterly income tax settlements. From when should Mr. Artur settle accounts on a monthly basis?

The loss of the status of a small taxpayer in income tax generates consequences only in the year following the year in which the limit was exceeded. Therefore, if Mr. Artur exceeded the limit in 2019, then from January 2020 he is obliged to settle income tax on a monthly basis. Information about the change in the settlement of advance payments for income tax from quarterly to monthly is not reported to the tax office. The notification takes place only in the annual tax return submitted for a given tax year.

Consequences in terms of VAT

Contrary to income tax, it is based on VAT. A taxpayer who exceeds the limit of EUR 1,200,000 during the year, pursuant to Art. 99 sec. 5 of the VAT Act, is required to submit monthly JPK_V7M files for the first month of the quarter:

• in which this amount was exceeded - if the exceedance took place in the first or second month of the quarter;

If this amount is exceeded in the second month of the quarter, the monthly JPK_V7K file for the first month of the quarter is submitted by the 25th day of the month following the second month of the quarter. Thus, the deadline for submitting JPK_V7 is extended by one month and the taxpayer has the right to submit a monthly JPK_V7 file for the first and second month of the quarter in the same period without tax consequences.

• following the quarter in which this amount was exceeded - if the limit was exceeded in the third month of the quarter.

Therefore, if the exceedance occurs in the first or second month of the quarter, the taxpayer submits the monthly JPK_V7M file already in the month of exceeding the limit, but if the exceedance takes place in the third month of the quarter, then for the quarter in which the limit was exceeded, the taxpayer submits the last JPK_V7K file quarterly, and from the month following this quarter - JPK_V7M.

Example 4.

Ms Michalina accounts for quarterly. In April 2019, it exceeded the limit entitling it to settle accounts on a quarterly basis. For what period and by what date should Ms Michalina submit the first JPK_V7M file?

Due to the fact that Ms Michalina exceeded the limit of EUR 1,200,000 in the first month of the second quarter (in April), she generates the first JPK_V7M file for April and submits it to the Tax Office by May 25.

Example 5.

Mr. Adam accounting for quarterly periods exceeded the limit of a small VAT taxpayer in May 2019. From when should he submit monthly JPK_V7M?

Since the limit was exceeded in the second month of the second quarter (in May), the taxpayer should generate the first monthly JPK_V7M file for April, and then for May. Both JPK files are then submitted to the Tax Office by June 25, 2019.

Example 6.

Ms Aleksandra exceeded the limit of the small taxpayer in June 2019. For what period is Ms. Aleksandra obliged to submit the first JPK_V7M file?

If the limit was exceeded in the third month of the second quarter (in June), then Ms Aleksandra should submit the first JPK_V7M file for July by August 25. For the second quarter, however, he submits the last JPK_V7K file (quarterly).

The loss of the right to submit quarterly JPK_V7K files should be reported by the taxpayer to the tax office competent for the place of residence (in the case of natural persons) or the place of business (in the case of persons who are not a natural person). The application is made by updating the VAT-R form. The deadline for submitting the VAT-R update is specified in Art. 96 sec. 12 of the VAT Act, which indicates that this should be done within 7 days of the change.

To sum up, exceeding the limits entitling to use the privileges offered by a small VAT and PIT taxpayer is associated with the fulfillment of certain obligations. The taxpayer should carefully analyze when he is obliged to make changes in tax settlements in order to avoid possible consequences in the form of tax interest or fines for non-compliance with reporting obligations.

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Small VAT and PIT taxpayers and the loss of status in the wFirma.pl system

Losing the status of a small taxpayer is not an obstacle for wFirma.pl users. In the system, you can easily make appropriate changes resulting from the change of status.

In the event of a change in the frequency of calculating advance payments for income tax from the year following the year in which the loss of the right to be a small taxpayer took place, the taxpayer should go to the SETTINGS »TAXES» INCOME TAX tab, where in the ADVANCED field, select the MONTHLY option and save.

However, the change of the settlement from monthly to quarterly in VAT should be made by going to the tab: SETTINGS »TAXES» VAT, where for the VAT DECLARATION option, select the MONTHLY option and save. Then the changes will be made and it will be possible to generate a monthly JPK_V7M file.