Mandatory cost correction and the revenue and expense ledger - new accounting documents

The obligatory cost adjustment is obligatory for entrepreneurs from January 2013 to the end of 2015. On the basis of the introduced regulations, the principles of calculating advance payments for income tax require the taxpayer not only to carry out a detailed payment control, but also - in the event of arrears - to carefully record such an event in the tax revenue and expense ledger. However, in order for the correction to be entered in the books, it will be necessary to create adequate accounting documents.

What is the cost adjustment?

The cost adjustment mechanism was designed to prevent payment backlogs. By assumption, imposing on entrepreneurs the obligation to write off expenses that have not been paid from the costs or to increase revenues by an appropriate amount should mobilize them to make timely payments.

The compulsory cost adjustment is based on Art. 24d of the Personal Income Tax Act (PIT). According to its wording, an entrepreneur who recognizes the expense as tax deductible costs, but does not pay for it within 30 days from the expiry of the payment deadline, is obliged to make an adjustment. The basic method of adjustment is to reduce the value of costs incurred in the period in which the above-mentioned period has expired. However, if there are no costs or their sum is lower than the amount that requires adjustment, the entrepreneur will be obliged to increase the revenues from this period with it.

The above basic rule applies to documents with a payment term of a maximum of 60 days. If, however, it is longer and the expenditure is not paid, the cost adjustment will have to be made on the 90th day from the date of including its value as tax deductible costs.

However, when the taxpayer settles his arrears, he will again be able to include the expense in his costs and thus reduce the tax base with income tax. However, in order for any of the indicated operations to be included in the tax revenue and expense ledger, it will need to be properly documented.

Cost correction and accounting vouchers

The types and contents of individual accounting documents that may constitute the basis for making entries in the tax book of revenues and expenditures are indicated in the Regulation of the Minister of Finance on keeping a tax book of revenues and expenditures of August 26, 2003, last amended on April 30, 2013 by Ordinance of the Minister of Finance amending the ordinance on keeping the tax book of revenues and expenses.

The issues related to the obligatory cost adjustment are presented in §12 para. 3 points 1a of the Regulation. According to this provision, the document on the basis of which a correction can be made must contain at least:

• the date of issue and the month in which costs are reduced or revenues increased,

• indication of an invoice or bill, and if there was no obligation to issue them - a contract or other document that is the basis for the correction,

• indication of the amount by which costs are reduced or revenues increased,

• signature of the author.

Similar data should be included in the accounting document, on the basis of which the entrepreneur may reduce the tax deductible costs after paying the outstanding amount - information on this matter is included in point 1b of the paragraph indicated above. Thus, in this case, the document must contain:

• the date of issue and the month in which the cost increase is made,

• indication of an invoice or bill, and if there was no obligation to issue them - a contract or other document that is the basis for the correction,

• indication of the amount by which the tax deductible costs increase,

• indication of evidence confirming the settlement of the obligation by which the costs are increased,

• signature of the author.

In this case, the proof of payment of the outstanding amount is very important. Although the regulation does not indicate which specific evidence may be sufficient in this case, bank receipts or statements are most often used in accounting practice.

Don't forget the physical inventory!

The correction of unpaid receivables will also affect the value of the physical inventory, which the entrepreneur is obliged to prepare, inter alia, at the beginning and end of each tax year.

The value of the physical inventory is very important in terms of income tax - the difference between the initial and final inventory will either increase the tax base (if the value of the final inventory is higher than the initial one) or reduce it (if the initial inventory is higher than the final inventory). What does it have to do with the correction?

If the entrepreneur did not pay the purchase of commercial goods or basic materials in a timely manner during the tax year and was therefore obliged to make an adjustment, he increased his tax base and the advance payment due in the relevant period. However, if the goods or materials are still in stock, they will be included in the inventory and will also increase the tax due.Thus, the entrepreneur would be subject to double taxation.

In order to avoid such a practice, an appropriate provision was introduced in the regulation - § 29 para. 4a. According to it, the entrepreneur reduces the value of the physical inventory by the amount by which he previously reduced the amount of tax deductible costs or increased revenues - unless, of course, the adjustment was related to the purchase of basic materials or commercial goods. The reduction is made in the part attributable to the goods and materials that were included in the physical inventory - that is, as a rule, not used and not sold during the tax year.

It is also worth remembering that if the value of goods or materials has been determined not on the basis of the purchase price or production cost, but other principles of valuation, indicated in § 29 section 1-4 and 7, the amount of the correction may not be higher than the value of such valuation.

On the other hand, if it happens that the entrepreneur was required to make a correction during the tax year in connection with an unpaid liability for goods or materials, but had settled such arrears prior to the inventory, this fact should not be included in the inventory. In this case, the tax deductible costs will be increased again.

As you can see, any entrepreneur who fails to pay their liabilities on time should scrupulously follow payment deadlines and make appropriate adjustments. The documentation on the basis of which such corrections can be entered in the tax revenue and expense ledger is described very precisely, so the formalities related to this procedure should not be a problem.

End of cost adjustment from January 1, 2016

It should be emphasized that the above principles regarding cost adjustments in 2016 are losing importance. Because on the basis of the amendment to the PIT Act, the correction of costs due to non-payment of expenses within the statutory deadline was abolished. However, the so-called a transitional period under which entrepreneurs who made adjustments to costs by the end of 2015 will be able to recognize them again as costs after they are paid after January 1, 2016.