Loss of right to flat tax - reasons

Entrepreneurs achieving significant income decide to choose the so-called flat tax. A low and fixed rate of this tax is its big advantage. The flat tax is the most advantageous form of taxation of business income if the income exceeds the first tax threshold, i.e. PLN 85,000. zloty. However, the regulations specify in detail when the right to a flat tax will be lost!

Taxation of income at the linear 19% tax rate is not available to all taxpayers engaged in non-agricultural economic activity. The legislator in Art. 9a paragraph. 3 of the PIT Act lists in detail the premises resulting in the loss of the right to flat tax.

It turns out that if a taxpayer who has opted for flat rate taxation obtains from business activity conducted independently or on account of the right to participate in the profit of a company that is not a legal person, revenues from the provision of services to the former or current employer, corresponding to the activities that the taxpayer or at least one of the partners performed or performs in a tax year as part of an employment relationship or a cooperative employment relationship, this taxpayer loses the right to tax with flat tax in the tax year and is obliged to make advance payments on the income earned from the beginning of the year, calculated using the tax scale and late payment interest on arrears on these advances.

The loss of the right to the flat tax occurs at the moment of obtaining revenues, which was confirmed by the Director of the Tax Chamber in Bydgoszcz in the letter ITPB1 / 415-312 / 14 / AD of July 2, 2014, in which we read:

(...) It follows from the facts presented in the application that in 2013 the Applicant ran a business in the field of design and supervision in the electrical industry and was employed on the basis of an employment contract as a supervision inspector in the electrical industry. In the same year, as part of his business activities, the Applicant issued an invoice to the employer for additional design services.

Taking into account the above-mentioned legal provisions, it should be stated that in the facts described in the application there is no possibility of taxing in 2013 the income obtained by the Applicant as part of non-agricultural economic activity, the so-called flat tax. As indicated above, directly from the provision of Art. 9a paragraph. 3 of the Personal Income Tax Act shows that the consequence of obtaining income from business activity for the provision to the current employer of services that correspond to the activities that the taxpayer performed for that employer in the tax year as part of the relationship is the exclusion of the possibility of taxation in this form for the tax year in which these revenues were obtained (...).

Loss of the right to flat tax and activities for the former employer performed after one year

However, if the activities are performed after one year, it is possible to apply this form of taxation. Such a position was confirmed by the Director of the Tax Chamber in Poznań in a letter of 28 May 2012, no. ILPB1 / 415-292 / 12-2 / IM, which reads:

(...) The Applicant earning income from independent business activity in the tax year 2012 from the provision of services to the former employer, corresponding to the activities that she performed in the previous tax year with the same employer based on the employment relationship terminated on 30 April 2011, does not lose the right to tax in 2012 in the manner specified in art. 30c of the Personal Income Tax Act and is not obliged to pay advances on the income earned from the beginning of the year, calculated using the tax scale referred to in art. 27 sec. 1 and late payment interest on arrears in respect of these advances. (...).

Example 1.

The taxpayer worked in a website development company. He left the company in 2014 and started his own business in the same field. He chose a flat tax to tax his income. The former employer commissioned an employee to create a website in 2016. Although the services performed by the employee for the employer are the same as those performed while he was working for him, he will not lose the right to tax his income with a flat rate tax.

Loss of the right to flat tax and other activities for the former employer

However, what is extremely important, the loss of the right to a flat tax applies only to a situation when the scope of services provided as part of the activity will coincide with the scope of activities previously covered by employee obligations.

This is also confirmed by the tax authorities, including in the individual ruling issued by the Director of the Tax Chamber in Bydgoszcz of September 15, 2014 no. ITPB1 / 415-660 / 14 / AK, in which we can read:

(...) if the services that the Applicant will provide to the former employer do not correspond (to any extent) to the activities that the Applicant performed in the tax year 2014 under the employment relationship, then in the future event presented by the Applicant will not be the circumstances referred to in Art. 9a paragraph. 3 of the Personal Income Tax Act. Thus, in 2014, the Applicant has the right to tax income from business activities in the manner specified in Art. 30c of the Personal Income Tax Act.

To sum up, the fact of concluding in 2014 a contract for the provision of services as part of business activities with an entity with which the Applicant was related in previous years with an employment contract does not exclude the possibility of taxing revenues obtained in 2014 as part of this activity with a 19% flat tax as the application implies, the scope of project management services will not correspond to the consultant's duties performed under the employment relationship. (...).

Example 2.

The taxpayer worked in a website development company. He left the company and set up his own business in the field of construction services, choosing taxation with a flat tax. The former employer commissioned him to renovate the premises. In such a situation, the right to the flat tax will not be lost, as the services are not identical to those provided by the former employer.