Relief for bad debts and related problems


Entrepreneurs who do not pay the amount due resulting from the invoice documenting the delivery of goods or services within 150 days from the date of expiry of the payment deadline, which was indicated in the contract or directly on the invoice, are obliged to correct the deducted amount of input tax. On the other hand, owners of companies with whom contractors are in arrears with the payment of receivables, after these 150 days have elapsed, may exercise the right to recover VAT from an unpaid invoice.

For the creditor - the right, for the debtor - an obligation

The issue of arrears with the payment of receivables resulting from invoices documenting the delivery of goods or services is regulated by the provisions of Art. 89a and b of the Value Added Tax Act.

It is worth noting that in this case the situation of the creditor and the debtor is significantly different. In the case of the former, bad debt relief is a privilege which (after meeting the conditions provided for in the Act) may or may not be used. On the part of the debtor, correcting the input tax is an obligation from which, as a rule, there are no exceptions.

Failure to meet this obligation is at risk of establishing an additional tax liability of 30% by the tax authority or the tax inspection authority. the amount of tax on unpaid invoices that has not been corrected. In the case of natural persons who are liable for an offense or a fiscal offense for the same act, no additional tax liability is established.

The necessity to reduce the input tax (in accordance with point 1a) may be prevented by the debtor if the payment is made on the last day of the settlement period, in which 150 days from the payment date have elapsed.

Bad debt relief from the debtor's perspective

Due to the imminent consequences, VAT payers who are late with the payment of liabilities should pay special attention to the deadlines resulting from the applicable provisions and, in the event of exceeding them, make an appropriate adjustment in the settlement period on which the 150th day expires.

Due to the fact that it is a relatively new obligation (the regulations in question came into force on 1 January this year), a large part of accounting programs may not be adapted to the applicable regulations. In such a situation, the entrepreneur must personally make appropriate entries and corrections.

In the event of a later payment of the amount due, after the input tax has been corrected, the taxpayer has the right to increase the amount of the input tax in the settlement for the period in which the amount due was settled or partially settled.

Bad debt relief from the creditor's perspective

Entrepreneurs-creditors often give up the right of relief for bad debts, and thus the recovery of VAT resulting from unpaid invoices. This is due to the desire to maintain good relationships with business partners. Applying for VAT in such a situation may be a pretext for the tax authorities to carry out an inspection at the debtor's. On the other hand, such control may even lead to the contractor's bankruptcy.


Moreover, in order to be able to take advantage of the bad debt relief, the conditions specified in the act must be met, which often involves additional obligations. An example may be the need to obtain information on the legal status of the debtor, for which the creditor must submit an application to the appropriate head of the tax office. Due to the entire list of obligations to be performed, creditors often give up their rights.