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Bad debt relief - how to properly demonstrate in the annual tax return?

Bad debt relief on the basis of income tax is a right and, at the same time, an obligation of entrepreneurs. Therefore, taxpayers must remember that the bad debt relief in the annual tax return should be shown. This is done on a special attachment. Let's see how to demonstrate it!

Bad debt relief in the annual tax return - what is it?

Bad debt relief occurs both on the sale side (if the conditions are met) and on the purchase side (it is mandatory). Bad debt relief on PIT grounds should be included in the advance for income tax first and then in the annual tax return if the liability / receivable is not settled. If we applied bad debt relief and made a payment or received it, the tax base should be increased / decreased accordingly during this period.

Bad debt relief on the sales side

Taking advantage of the bad debt relief on the sales side is possible, while its application - voluntary. To be eligible for the relief, the following conditions must be met:

the debtor cannot be in the course of bankruptcy, liquidation or restructuring proceedings as at the last day of the month preceding the date of submitting the tax return;
2 years may not elapse from the date of issuing the invoice (bill) of concluding the contract;
the income from the activities of the creditor and debtor who are parties to a commercial transaction must be taxed on the territory of Poland.

In a situation where the above conditions are met, a creditor who has not received payment for the sale transaction has the right to obtain a bad debt relief under PIT within 90 days from the date of the payment date indicated on the invoice (bill) or contract. As part of the Anti-Crisis Shield 4.0, Art. 52w, which shortens the current term (on the sale side) enabling the use of bad debt relief, i.e. up to 30 days. More on this topic in the article: Relief for bad debts in PIT on the seller's side during a pandemic.

Example 1.

Ms Małgorzata made the sale on April 21, 2020, the payment date is April 28. The sale was made to the company C. The company C did not pay the liability and thus Mrs. Małgorzata did not receive the payment for the invoice. The tax base may be reduced by an invoice issued to the company C only within 90 days from the payment date, i.e. on July 27, 2020.

Bad debt relief on the purchase side

In the case of purchase invoices, specific conditions do not have to be met, and in accordance with Art. 26i of the PIT Act, the tax liability should be increased by the value of the liability included in tax costs, which has not been settled within 90 days, counting from the date of expiry of the payment date indicated on the invoice (bill) or contract. This discount cannot be made voluntarily - it is obligatory.

Example 2.

Ms Angelika purchased a TV set from A, for which she received a VAT invoice. The invoice was issued on February 28, 2020, the payment deadline is March 1. Mrs. Angelika did not pay for the invoice due to insolvency. The invoice was included in the costs. Due to the fact that Ms Angelika did not pay for the invoice, she will be obliged to increase the tax base on the 90th day from the payment date, i.e. May 30, 2020. As a result of the amending act, debtors were released from the obligation to increase the income constituting the basis for calculating the PIT advance payment for the settlement periods falling in 2020, in which they met the following conditions:

The taxpayer suffered negative economic consequences due to the coronavirus in the given tax period.
The revenues obtained by the taxpayer in a given settlement period are lower by at least 50% compared to the corresponding period of the previous tax year, and in the case of a taxpayer who started operating in 2019 - compared to the average revenues obtained in that year.

These liabilities are added to the income constituting the basis for calculating the advance payment, starting from the first settlement period of the next tax year, not earlier than in the settlement of the advance payment for 2021, if the liability is not settled by the date of payment of this advance payment.

The exemption from the obligation to correct tax deductible costs after meeting certain conditions during the tax year does not release the debtor from the obligation to increase the tax base or reduce the loss at the time of submitting the annual tax return for 2020, if the claim has not been settled or disposed of by the date of the return.

Bad debt relief and payment of liabilities after the tax year

In the case of settlement of payments after the tax year, the act stipulates that the creditor should increase the obligation to pay accordingly, while the debtor should reduce this obligation. This should be done when submitting a tax return for the tax year in which the liability was settled.

How should bad debt relief be shown in the annual tax return?

Bad debt relief in income tax should be included in the annual tax return when the taxpayer used it on the sales side (voluntarily) and on the purchase side (obligatory) in a given tax year. Bad debt relief is shown in the PIT / WZR appendix in the case of PIT-28 (lump-sum taxation) or in the PIT / WZ appendix, which is attached to the annual tax returns - PIT-36 and PIT-36L.

In the PIT / WZR and PIT / WZ forms in part A and in item 1, the data of the entity to which the attachment relates are completed.

Part B of the form specifies the data on the debtor and the claim, if the claim has not been settled or sold by the date of submitting the tax return (applies to claims reducing revenues / income - to be filled in by the taxpayer who is the creditor). The data that is supplemented are:

debtor's name;
invoice / bill / contract number;
tax identification number of the debtor;
date of issue of the invoice / bill or conclusion of the contract;
date of expiry of the payment deadline;
the value of the claim.

Part C, on the other hand, specifies the creditor and liability data, if the liability has not been settled by the date of submitting the tax return (applies to liabilities increasing revenues - is filled in by the taxpayer who is the debtor). The data that is supplemented are:

creditor's name;
invoice / bill / contract number;
tax ID of the creditor;
date of issue of the invoice / bill or conclusion of the contract;
date of expiry of the payment deadline;
the value of the liability.

In part D, the details of the debtor and the claim are completed if the claim has been settled or sold. This applies to a claim that has reduced the tax base or increased the loss. The data that is supplemented are:

debtor's name;
invoice / bill / contract number;
tax identification number of the debtor;
date of issue of the invoice / bill or conclusion of the contract;
date of expiry of the payment deadline;
date of settlement or sale of receivables;
the value of the claim.

In part E, the data on the creditor and the liability are completed, if the liability has been settled. It concerns liabilities that increased the tax base or decreased the loss. The data that is supplemented are:

creditor's name;
invoice / bill / contract number;
tax ID of the creditor;
date of issue of the invoice / bill or conclusion of the contract;
date of expiry of the payment deadline;
date of settlement of the obligation;
the value of the liability.

Please indicate the consecutive number of the attachment in the total number of submitted PIT / WZR or PIT / WZ attachments. If there is not enough space in part B, C, D or E to recognize the claim / obligation, you must complete the next appendix. In the case of partners of a partnership, the taxpayer enters the value of the claim / liability used for its share. Total amounts from the attachment:

PIT / WZR - rewrite to part G of the annual tax return PIT-28;
PIT / WZ - rewrite to part H of the PIT-36 annual tax return (in the case of taxation with the tax scale) or to part F of the PIT-36L annual tax return (in the case of flat taxation).

Bad debt relief in the annual tax return - a solution in the wFirma.pl system?

In the wFirma.pl system, in the Online Accounting / Online Accounting + Warehouse package, it is possible to generate an annual tax return containing all the data on business activity entered in the system. Thanks to this, it will be possible to generate an annual declaration without unnecessary supplementation, because it will be completed automatically based on system data. To generate an annual tax return, go to the tab: START »TAXES» ANNUAL DECLARATIONS »ADD DECLARATION and then select one of the appropriate forms:

Annual income tax declaration on general terms (PIT 36);
Annual flat income tax declaration (PIT 36L);
Annual flat-rate income tax declaration (PIT 28).

The PIT / WZR appendix in the case of PIT-28 (lump-sum taxation) or the PIT / WZ appendix, which is attached to the annual tax returns - PIT-36 and PIT-36L - will be possible to select when generating the annual tax return for 2020.