Expenses of a personal nature in company costs

When running his own business, an entrepreneur should take into account the necessity to incur various types of expenses. Some of them can certainly be classified as tax costs, but the rest will not. The nature of the expenditure and its purpose are decisive here. Can personal expenses be counted as corporate expenses? Let's check it out!

Which expenses can be included in the costs?

The taxpayer may include in company costs only those expenses that meet the requirements of Art. 22 sec. 1 of the Personal Income Tax Act, according to which: "Tax deductible costs are costs incurred in order to achieve revenues or to maintain or secure a source of revenue, except for the costs listed in Art. 23 ". This means that the first and most important condition is to incur an expense in order to earn income or to maintain or secure a source of income. The second - that this cost cannot be listed in the catalog of costs that are not tax deductible costs (listed in Article 23 of the Act). In addition, the taxpayer must be able to prove a cause-and-effect relationship between the cost incurred and the income earned on it.

In connection with the above, the typical tax costs of the conducted activity include, among others:

• purchase of commercial goods and materials;

• payment of salaries to employees;

• bank charges for maintaining a company bank account;

• purchase of fuel for a company vehicle;

• purchase of office supplies for the company's needs.

This is not the entire list of expenses that qualify as tax deductible costs, but only examples of them.

Example 1.

Entrepreneur Rafał runs a computer shop. In January 2021, he purchased five laptops worth PLN 2,000 each - three with the intention of resale, one intends to use in business, and the last one decided to hand over for private use. How should Mr. Rafał enter the invoice for the purchase of equipment?

Mr. Rafał should include the invoice for the purchase as follows:

• in column 10. - Purchase of commercial goods and materials - include the value of these three laptops, which were bought with the intention of resale, because they meet the definition of commercial goods;

• in column 13. - Other expenses - include the value of one laptop computer that you chose to use in your business.

On the other hand, the value of equipment that will be transferred for private use is not included in the records. Expenses of a personal nature do not constitute a tax expense and cannot be included in company costs, regardless of whether the invoice documenting their purchase was issued for company data or not.

The personal nature of the expense

In order for an expense to be a tax expense, it must be related to the conducted business activity. In the absence of this connection, as a rule, it cannot constitute a cost and be entered in the records. It is also worth emphasizing that most of the expenses of a personal nature, despite being indirectly related to the activity, will not be tax-deductible. The most characteristic include the purchased for the entrepreneur:

• corrective glasses or lenses;

• driving course;

• swimming pool pass;

• ticket to the gym;

• a vaccine;

• a visit to the dentist or

• life insurance.

It is worth adding that apart from the above types of costs, there are also more abstract ideas, such as expenses for kindergarten or summer camps for the entrepreneur's children.

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When it comes to expenses for glasses, lenses, etc., when purchasing them for himself, the entrepreneur will not be able to reduce the generated revenues from the activity by their value. Such a position results, among others, from from the interpretation of the Director of the National Tax Information of September 24, 2020, 0113-KDIPT2-1.4011.574.2020.2.MGR, which stated that:

„[...] the expenditure on the purchase of corrective glasses is primarily intended to protect [...] health. Expenses related to the health condition of a self-employed person are expenses of a personal nature. In the event of a sight defect or its worsening, a natural person is forced to purchase corrective glasses, regardless of whether he runs a business or not. Thus, the immediate goal of incurring this type of expenditure is to protect the eyesight, not to generate income from non-agricultural economic activity. Despite the indication that the Applicant will use the purchased corrective glasses only for the performance of [...] duties, the above-mentioned purchase is conditioned by the Applicant's health condition, i.e. a vision defect that requires correction, and therefore is an expense of a personal nature, independent of running a business.

[...] incurring expenses for the purchase of corrective glasses does not affect the amount of revenues obtained from the provision of services performed as part of the conducted business activity, or the relation to the conducted activity as a source of revenues. Therefore, the expenditure incurred on the purchase of corrective glasses for work at the computer cannot be qualified as tax deductible costs, in accordance with Art. 22 sec. 1 of the Personal Income Tax Act”. The specificity of the conducted activity is the decisive criterion for qualifying a cost as a corporate or personal expense. It should be emphasized that there are exceptions in the interpretation of the regulations that allow for the classification of certain specific expenses as tax costs. However, they refer to characteristic forms of activity. The best example of this is the interpretation of the Director of the Tax Chamber in Warsaw of March 10, 2010, IPPB1 / 415-17 / 10-2 / AM:

„The applicant conducts business activity consisting in the protection of persons in accordance with the Act on the Protection of People and Property. The activities carried out by the Applicant are based on contacts with a Russian and English-speaking contractor. The indicated contractor is also the main source of the Applicant's company income. An additional activity of the Applicant is the activity in the field of special training, most of which the Applicant performed for the army going on missions to Chad, Iraq and Afghanistan, and this year - it plans to expand its training activities to foreign markets, mainly Great Britain and Germany.

As a consequence, improving the professional qualifications of an entrepreneur by learning foreign languages ​​creates the possibility of establishing and maintaining economic contacts with foreign contractors. Also, the specificity of business activity in the field of personal protection and special training allows for the recognition of expenses incurred for the swimming pool, gym and martial arts aimed at maintaining good physical condition of the Applicant to the costs of economic activity”.

Thus, exceptionally, a gym pass, which is usually considered an expense of a personal nature, in an individual case (of the taxpayer referred to in the interpretation) could constitute a tax cost.

Another example is the cost of a hearing aid. Where such a cost directly contributes to the proper performance of the profession, it is possible to include the expenditure on the purchase of a hearing aid in the corporate costs. This is confirmed by the interpretation of the Director of the National Tax Information of June 29, 2020, 0112-KDIL2-2.4011.323.2020.2.AA:

„[...] incurring the expenses for the hearing aid indicated in the application, which is necessary in the course of practicing the profession and is an indispensable element of the comprehensive performance of the service being the subject of the Applicant's business and this expenditure may objectively translate into earning income, tax cost”.

Recognition of expenditure on masks and health protection in the era of epidemics

Taxpayers may have many doubts as to whether the costs of corporate protective equipment, i.e. masks, helmets and disinfectants, are included in the costs. In accordance with the tax explanations on new preferences applied in connection with incurring negative economic consequences due to COVID-19, if the entrepreneur incurs expenses resulting from the obligation in the field of occupational health and safety (running a business) or guidelines or recommendations of authorities (institutions) ) competent in the area of ​​sanitary safety, or their own decision and rational counteracting the epidemic threat (epidemic), such expenses constitute a tax-deductible cost, provided that they have been properly documented.

To download:

pdf
Tax explanations - on new preferences applied in connection with incurring negative economic consequences due to COVID-19.pdf Description: manual fill-in Examples of expenses that can be classified as tax costs are face masks for employees, helmets or financing employees of coronavirus tests. In the tax explanations, the legislator did not directly address the issue of whether such costs incurred for the benefit of the employer are treated as personal expenses for the entrepreneur and whether they can be included in tax costs. To sum up, the possibility of qualifying a specific expense as a tax deductible cost depends on a reliable and comprehensive assessment of its nature. At the same time, it is the entrepreneur as a taxpayer that is obliged to prove the relationship between incurring costs and obtaining income.

It should be additionally emphasized that what is purposeful and necessary in the conducted activity is determined by the entity conducting business activity, although in practice the taxpayer's interpretation may not be obvious to the tax authorities. Therefore, entrepreneurs have the possibility to apply for an individual interpretation, which will be the basis for recognizing a given expenditure in the costs in the event of a possible future inspection.

Posting of expenses in the wFirma.pl system

To enter a cost invoice to the system, go to the EXPENDITURE »ACCOUNTING» ADD »VAT INVOICE / INVOICE (WITHOUT VAT) / EXPENSES tab, where, after completing the required data, select the appropriate EXPENSE TYPE.

Thanks to this, the expenditure will go to the appropriate column of the KPIR and the VAT register of purchases (in accordance with the right to deduct) in the case of active VAT payers.