Consequences of the return to the subjective exemption from VAT

An entrepreneur starting a business, who, despite the low expected turnover, resigns from the subject exemption from VAT, should bear in mind that the return to the exemption will be possible only after one year.

Turnover limit

Pursuant to the Act on Value Added Tax, taxpayers are exempt from VAT for taxpayers whose value of taxable sales did not exceed the total amount of PLN 150,000 in the previous tax year. The amount of tax is not included in the sales value. This limit also applies to new entrepreneurs, but it is calculated in proportion to the period of their activity in a given year.

Importantly, the above turnover limit does not include the value of deliveries of goods and the provision of services exempt from VAT and the sale of fixed assets and intangible assets subject to depreciation.

Why do entrepreneurs resign from the exemption?

People starting a business usually incur increased expenses in the first months of running it. They are often related to the purchase of fixed assets and equipment. These can be significant values, which active taxpayers are entitled to a VAT refund. Hence, new entrepreneurs often give up the VAT exemption right at the very beginning. This is especially beneficial for entrepreneurs who constantly incur high costs, e.g. related to the purchase of goods.

Return only after a year

However, it often turns out that the sales value is within the limit of PLN 150,000, and entrepreneurs do not incur large enough costs to sufficiently reduce the tax due. This is especially the case with service companies. The good news is the possibility of returning to the subjective exemption. You only have to wait 1 year after the end of the year in which the taxpayer waived the exemption. This means that an entrepreneur who decides to become an active VAT taxpayer from July 2013 will have to wait until January 2015 to take advantage of the exemption.

Therefore, it is better to recalculate what will be more beneficial in a given case before resigning from the exemption.

Formalities

When the entrepreneur decides to return to the subject exemption, it is necessary to notify the head of the tax office. For this purpose, an update of the VAT-R form must be submitted. Only on this basis, the tax office will exclude the entrepreneur from the register of active VAT payers.

What should you remember?

Entrepreneurs should bear in mind that the change of the taxpayer's status from active to exempt may in some cases result in the obligation to correct the previously deducted VAT. This can apply to both fixed assets, equipment and unsold commercial goods. There is a change in the intended use of the above items, from those related to taxable sales to those benefiting from VAT exemption. In such a case, the VAT tax should be indicated in the tax declaration (VAT-7 / VAT-7K), submitted for the period in which the destination was changed.