Overpayment for an invoice - tax settlement

The main goal of running your own business is to make a profit. So selling the goods and services offered is essential. In business practice, entrepreneurs first issue an invoice and the buyer makes a payment based on it. What to do if the buyer has paid more than he should? What are the tax consequences of an invoice overpayment? We explain below.

Overpayment for an invoice and income tax

To check whether the overpayment for the invoice will constitute business income, refer to the definition of income included in art. 14 sec. 1 of the PIT Act:

“For the income from the activities referred to in Art. 10 sec. 1 point 3, the amounts due, even if they were not actually received, excluding the value of the returned goods, granted discounts and discounts. In the case of taxpayers selling goods and services subject to tax on goods and services, the revenue from this sale shall be deemed to be revenue less the due tax on goods and services. "

Moreover, the definition of revenues from economic activity has been extended to include the components listed in Art. 14 sec. 2 of the Act. Among them are :

• received contractual penalties,

• exchange differences,

• value of received benefits in kind and other gratuitous benefits,

• revenues from the sale of assets, etc. remaining for consideration, as at the date of liquidation of economic activity or special departments of agricultural production, conducted independently.

Another, equally important issue is the date when the income from business activity arose. Pursuant to the Act, the date on which the revenue arises is generally considered to be the date the item is delivered, the property right is sold or the service is provided or the service is partially provided, no later than:

• issuing an invoice or

• payment of receivables.

As you can see, overpayments made by buyers in connection with the purchase of goods or services are not mentioned among the above. However, this is not the end of our analysis. Please note that if the mistaken invoice overpayment is reimbursed promptly, it will not be considered business income. This position is confirmed by the interpretation issued by the Director of the Chamber in Łódź of June 25, 2015, ref. No. IPTPB1 / 415-211 / 13-2 / DS, which states that:

“(...) the re-payment received from the contractor from Algeria was incorrectly included by the Applicant in the income due at the date of its receipt. The payment was in the nature of an undue payment, it was made without any basis, by the contractor who was not obliged to pay it. (...) "

In such situations, however, the parties may assume that the overpaid amount will constitute an advance for future supplies of goods or services. Then it should be remembered that the reclassification of the overpayment into an advance payment has consequences in terms of VAT, as discussed below.

The last situation worth paying attention to is the one in which the taxpayer has decided to keep the overpayment and does not treat it as an advance payment for future supplies or services. Then the overpayment will constitute the remaining income, which should be shown in col. 8 - KPiR - other income.

Overpayment for an invoice and VAT

In the case of overpayments for an invoice on the basis of VAT, one should take a look at the provisions on the emergence of a tax obligation. The general rule specified in Art. 19a paragraph. 1 of the VAT Act indicates that the tax obligation under VAT arises, as a rule, upon the delivery of goods or the performance of a service.

Another provision that the taxpayer should pay attention to when there is an overpayment for an invoice is Art. 19a paragraph. 8 of the VAT Act, which indicates:

"If, prior to the delivery of the goods or the performance of the service, all or part of the payment has been received, in particular: prepayment, advance payment, advance payment, installment, construction or housing contribution prior to the establishment of the cooperative right to a dwelling or premises for another purpose, the tax obligation arises upon its receipt in relation to the received amount, subject to paragraph 5 point 4. "

According to the tax authorities, an unduly received payment does not constitute a payment for a good or service or an advance payment. The confirmation of the above position is the individual interpretation issued by the First Wielkopolska Tax Office in Poznań of August 10, 2007, which stated:

"(...) the impact of undue amounts on the entity's account cannot be equated with the receipt, prior to the performance of the service, of a part of the receivable, in particular prepayment, advance payment, down payment, installment (...) a situation where the user of the leased asset pays a higher amount than the one resulting from the contract, before the specified payment date and before the service is performed, therefore it should be considered that there will be no tax obligation in this part. (...) Upon receipt of the client's declaration of intent to include the overpaid amount towards a specific amount due, the tax obligation will arise according to the principles set out in Art. 19 paragraph 13 point 4 of the above-mentioned Acts (...) ".

Therefore, the amount overpaid for the invoice itself does not give rise to a VAT obligation. Except that this amount should be returned to the buyer.

However, in a situation where the parties treat the invoice overpayment as an advance payment for future deliveries, the seller should prepare an advance invoice and report the VAT due.

If the seller decided not to return the overpayment and would not treat it as an advance payment, then, as a rule, it does not have any consequences under VAT.