Service-Tax

The possibility of carrying out an inventory during the year and advance tax payment

The physical inventory in the company should, as a rule, be carried out within strictly defined deadlines specified in the regulation on keeping the tax book of revenues and expenses. As a standard, it is prepared at the end and beginning of the year. However, taxpayers may exercise the right to conduct an inventory also during the tax year. The question then arises: "How does the possibility of carrying out an inventory during the tax year affect the advance on income tax?".

Physical inventory - when should it be prepared?

The obligation to prepare a physical inventory results from § 27 para. 1 of the regulation on keeping the tax book of revenues and expenses:

on January 1,
at the end of each tax year,
on the day of commencement of operations during the tax year
as at the date on which the right to flat-rate income tax taxation was lost during the tax year
in the event of a change of shareholder,
in the event of a change in the proportion of shareholders' shares
on the day of liquidation of the activity.

In a situation where the entrepreneur conducts an inventory at the end of the tax year, he is not obliged to prepare another one on January 1 of the following year. The final inventory then automatically becomes the initial inventory for the following year.

The necessity to prepare a physical inventory may also occur at the request of the head of the tax office.

In addition to the strictly defined deadlines by which the physical inventory must be prepared, the taxpayer also has the option to carry out an inventory during the tax year, which will affect the determination of the taxpayer's income.

What is the impact of the inventory on the determination of income?

In line with art. 24 sec. 2 of the Personal Income Tax Act, the income is the entrepreneur's revenues, less tax deductible costs incurred by him, taking into account inventory differences. On the other hand, inventory differences arise as a result of comparing the values between the final and the initial physical inventory. This amount is due:

increase the income as long as the difference is positive, or
reduce your income if it turns out to be negative.

Art. 24 sec. 2 of the Personal Income Tax Act
In the case of taxpayers who earn income from economic activity and keep books of revenues and expenses, operating income is the difference between income within the meaning of art. 14 and costs of obtaining, increased by the difference between the value of the final and initial inventory of trade goods, basic and auxiliary materials (raw materials), semi-finished products, work in progress, finished products, shortages and scrap, if the value of the final inventory is higher than the value of the initial inventory or reduced o the difference between the value of the initial and final inventory, if the value of the initial inventory is higher.

The vast majority of taxpayers decide to conduct physical inventories in accordance with the recommendations set out in the regulations. Therefore, an initial inventory is created at the start of a business or on the first day of a new tax year, and then a final inventory at its end. The difference between the final and initial census is then taken into account when calculating the tax for the entire tax year and generating the annual PIT declaration.

How does the possibility of carrying out an inventory during the year affect the down payment?

Entrepreneurs have the right to carry out inventories during the tax year - even for each month separately. In such a situation, the value of the physical inventory should be taken into account already when generating the advance tax for the period in which the taxpayer decided to summarize the inventory. Then, to determine the inventory difference, the difference between the physical inventory prepared during the tax year and the initial inventory is taken into account. If the resulting value is positive, it will increase taxable income in the advance on income tax prepared for the month of making the inventory, and if negative - it will decrease.

If another inventory is carried out during the year, the difference between the current inventory and the previous physical inventory is taken into account when calculating the inventory difference.

Example. 1

Entrepreneur Michał prepared an initial inventory as at the first day of January 2019, which amounted to PLN 10,000. In July 2019, he decided to draw up an interim inventory, the value of which was PLN 8,000. Therefore, the taxable income in the advance income tax for July will be reduced by PLN 2,000.

At the end of August, the entrepreneur decided to make a physical inventory again, the value of which was PLN 5,000. Then, the difference between the July and August inventory is taken into account, so that the income tax advance will be increased by PLN 3,000.

The entrepreneur is not required to inform the tax authorities about the intention to prepare a physical inventory, even if its preparation takes place during the tax year.

Importantly, when preparing the annual tax return, the value of the physical inventory at the end and beginning of the year is taken into account. In this situation, inventories prepared during the tax year are not taken into account (they are only included in the advance payment).