You sell and you don't have a business - check what the penalties are!
Starting a business may look very inconspicuous - e.g. in the case of small sales transactions on auction sites. We are starting to sell redundant items at home that have been lying on the shelves for years, collecting only dust. When the number of buyers for goods grows, we buy more items for resale. But be careful! Undertaking profit-making activities in an organized and continuous manner is already an economic activity. So if you sell and you do not have a business - you will face penalties!
What do the rules say?
It is worth paying attention to how the current regulations define economic activity. The main legal basis regulating this issue is the Entrepreneurs' Law, and more specifically its general provisions. They characterize economic activity as:
- organized gainful activity,
- performed on your own behalf
- performed continuously.
In this matter, it will also be important to clarify the concept of economic activity included in the Tax Ordinance. This definition refers to the above-mentioned of the Act, where it additionally covers any gainful activity, including the pursuit of a freelance profession and any other gainful activity performed on one's own behalf and on one's own or someone else's behalf. Importantly, this also applies to activities which other acts do not apply to economic activity or persons performing them - to entrepreneurs.
An explanation of economic activity can also be found in the PIT Act, which combines both of the above-mentioned definitions. On the other hand, being a taxpayer according to the VAT Act means independent business activity including:
entities acquiring natural resources and farmers,
activities of freelancers.
The common element that combines all the definitions resulting from the provisions of law is the statement that an activity carried out in an organized and continuous manner, having a profit-making nature, will be considered an economic activity. Therefore, a person meeting the above conditions will be required to register as conducting business.
It is also worth knowing that the amount of income does not matter, because any amount obtained from activities aimed at obtaining income in an intentional and continuous manner will be considered as running a business.
Entrepreneurs who meet the following conditions may, in connection with the introduction of new regulations - the Business Constitution - take advantage of the so-called unregistered activity:
It should be borne in mind that unregistered activities cannot be used by activities requiring special permits or concessions, or by civil law partnerships.
Penalties for running undeclared business
Running a business without reporting it to the Central Register and Information on Economic Activity (CEIDG) is usually tantamount to non-payment of obligations to state authorities - taxes on earned income, VAT and social security contributions. Unfortunately, tax evasion in this way can be severely punished in some cases. According to the Code of Petty Offenses, a person who carries out economic activity without:
the required declaration to the business register,
entry in the register of regulated activity or
without the required license or permit,
- shall be subject to the penalty of restriction of liberty or a fine.
Failure to pay income tax and VAT
Tax must be paid on each income earned, even if you are not running a business. Evasion of this obligation may be perceived by the tax authorities as obtaining revenues from undisclosed sources. In the event that the pursuit of unregistered activity is detected by officials, the trainee may be required to pay the tax due, together with interest, from the moment the activity in question commences. At the same time, it is worth bearing in mind the provisions of the Fiscal Penal Code, in which there is a provision that a taxpayer who does not disclose the subject or base of taxation exposes the tax to depletion. Therefore, he is subject to a fine of up to 720 daily rates or imprisonment - or both.
The same problem also applies to the tax on goods and services. Depending on the type of activities performed (sale of excise goods, provision of brokerage services, etc.), the person making the sale may be required to register as an active VAT payer and to pay the related liabilities to the account of the tax office. Otherwise, it may be required to register only when it exceeds the sales limit of PLN 200,000. As with income tax, a person making a sale without VAT settlements may be required to return the tax arrears along with late payment interest, which may be of high value.
Failure to keep accounting records
The lack of a formal notification of the conducted gainful activity is also often associated with the lack of keeping records required by law. When selling goods or providing services, the entrepreneur is obliged to keep accounting records of economic events in the KPiR, accounting books, sales records or VAT registers.
The Fiscal Penal Code states that a taxpayer who evades keeping a book or keeps it in an unreliable and defective manner is subject to a fine of up to 240 daily rates.
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Consequences of the lack of a cash register
The obligation to use a cash register in the case of sale to natural persons not conducting business activity and to flat-rate farmers is regulated by the VAT Act. In the event of failure to comply with the obligation to install the device, an additional penalty in the form of a tax liability may be imposed on the taxpayer. The fine imposed by the tax authority is 30% of the amount of the input tax charged on the purchase of goods and services, counting until the start of the records with the cash register.
In addition, due to failure to meet the required conditions, the entrepreneur will not be entitled to take advantage of the discount for the purchase of a cash register.
Unpaid social security contributions
It is the responsibility of every entrepreneur to pay social and health insurance contributions. Along with setting up a company, you should report to the appropriate branch of the Social Insurance Institution using the appropriate form. This necessity results directly from the Act on the social insurance system.In this case, the lack of declaration of business activity will result in arrears in the payment of contributions from the beginning of the activities performed and interest on these arrears. The amount of the fine may also be increased by an additional charge of 100% of the amount of due and unpaid social security contributions.
Therefore, when starting a profit-making activity in an organized and continuous manner, focused on achieving income, it is worth considering whether the lack of registration of the company will be a good solution. As can be seen from the above considerations, the penalties for such an offense can reach very high values.