Lump sum compensation - how to settle?

In the event that the injured in a car accident is an entrepreneur who makes a lump-sum payment on recorded revenues, then the received compensation for the repair of company property will have to be included in the income from business activity. How to correctly settle the compensation received on the lump sum? We explain.

Lump sum on registered revenues - basic information

Lump sum on registered revenues is one of the possible forms of taxation. The lump sum may be used by natural persons who:

• conduct non-agricultural business activity or
• they earn income from, for example, lease, sublease, lease, sublease or other similar contracts.

The use of this form of taxation has been made available to taxpayers who obtained operating income in the amount not exceeding the equivalent of EUR 250,000 (the upper limit of revenues for 2016 entitling to taxation with a lump sum recorded in 2017 is PLN 1,074,400). Conversion into zlotys is made according to the average exchange rate announced by the National Bank of Poland on the first working day of October of the previous year. For 2017, it is the average EUR exchange rate on October 3, 2016, amounting to 4.2976.

The main feature that distinguishes a lump sum from other forms of taxation (general rules or flat tax) is the inability to classify expenses incurred in connection with the conducted activity as tax costs. The tax is calculated based on the amount of income obtained.

Lump sum compensation should be shown as income

The entrepreneur, by insuring the company's property, ensures that he will receive appropriate compensation in the event of unfavorable events that are provided for in the contract. Pursuant to Art. 14 sec. 2 point 12 of the PIT Act, income from business activity also includes received compensations for damages related to assets related to the conducted business activity. Additionally, it should be emphasized that this income was excluded under Art. 21 sec. 1 point 4 in the scope of exemption from income tax.

In such a situation, the lump sums should also present the received compensation as income from the activity. Such compensation for damage to company assets should be taxed at the 8.5% flat rate.

Example 1.

Mr. Janusz had a car collision, the vehicle was a fixed asset for the company. The activity was taxed at a lump sum. The incident was the fault of the co-driver, so Mr. Janusz received compensation. On the part of Mr. Janusz there was a question whether this type of compensation constitutes income from the activity and what lump sum rate should it be taxed at.

Compensation for insuring corporate property is income from activity, which should be taxed at a flat rate of 8.5%.

Important! Company assets should be understood as fixed assets, intangible assets, but also other tangible assets - equipment.

It does not matter whether the entrepreneur taxes his basic income at a rate of 3.5% or higher. Compensation received as a lump sum will have to be taxed at the rate of 8.5%. According to Art. 12 sec. 1 point 3 lit. i) the act on the flat-rate income tax on certain revenues earned by natural persons, the flat-rate on revenues recorded for the revenues referred to in art. 14 sec. 2 points 11 and 12 (this includes compensation for damage to the vehicle) of the Personal Income Tax Act is 8.5%.

Such a position was confirmed in his interpretation of April 29, 2015 (ref. IBPBI / 1 / 4511-99 / 15 / WRz) by the Director of the Tax Chamber in Katowice: (...) for taxpayers conducting non-agricultural business activity, regardless of the form of its taxation, compensation received for damage to assets related to the business activity (...) constitutes income from this activity.

Consequences of receiving compensation not related to business activity

Received property and personal compensation not related to the conducted business activity will, as a rule, benefit from income tax exemption. At the same time, it is worth ensuring that the content of the policy clearly contains information about private property insurance or, on the contrary, company property.

Example 2.

Mr. Janusz had a car collision due to the co-driver's fault. The vehicle the entrepreneur was driving was private property and was used in the business. On the part of Mr. Janusz, there was a question whether this type of income should be shown as part of the business activity taxed with a lump sum.

In such a situation, the compensation relates to private property and therefore does not constitute operating income. It is not shown in the revenue record.

Lump sums have to be double-minded

Additionally, attention should be paid to the fact that entrepreneurs benefiting from taxation of revenues from their activities with a lump sum will not be able to reduce their revenues by the amount of expenses related to the post-collision repair. In the case of this particular form of taxation, they are not taken into account when determining the amount of tax.

Lump sum compensation in the wFirma.pl system

In order to add compensation to revenues in the Income Register, go to the RECORDS >> REVENUE RECORDS >> REVENUE RECORDS >> ADD ENTRY tab, in the generated window, enter the appropriate value in the 8.5% column. The revenue will be correctly shown in the records and included in the calculation of the lump sum for the given accounting period