Change in the form of taxation in the annual tax return

Optimization of tax settlements is related to, inter alia, with the choice of the form of taxation, which allows not only to favorably tax income (revenues), but also to improve tax settlements and improve the company's liquidity. Below, we focus on the change in the form of taxation that can be made in the annual tax return. Such a possibility appeared relatively recently, i.e. on January 1, 2019. Before that date, the choice of an alternative form of settlements required a written notification, which had to be sent to the competent head of the tax office. In order to inform the tax office about the adopted methods of settlements, which will be presented below, the templates of tax returns have been modified by introducing a part entitled "additional information". This section of the annual tax return is intended to inform the tax office about the choice / resignation from using one of the forms of tax settlements described below. In this article, we will explain what the change in the form of taxation in the annual tax return looks like.

Choosing the method of paying advances (monthly / quarterly, simplified advances)

As of January 1, 2019, the obligation to notify the tax authority in writing (alternatively via CEiDG) about:

• resignation / selection of quarterly advance payments for income tax,

• choosing to pay simplified advances in the amount of 1/12 of the tax amount, calculated on the income declared in the tax return, submitted in the year preceding the given tax year, or submitted in the year preceding the given tax year by two years.

Taxpayers had time to inform the tax office until February 20 of a given tax year, i.e. relatively shortly after its commencement.

The current legal status makes it possible to do the above in the submitted annual tax return, which in practice extended the deadline from February 20 to March 31 / April 30 of the next tax year, i.e. by over a year, i.e. until the submission of CIT and PIT returns. Declaring in the submitted annual tax return the choice or resignation from paying quarterly advances, or the choice of paying simplified advances for income tax applies to PIT and CIT taxpayers. However, the existing restrictions for the quarterly settlement should be taken into account, because it is intended for taxpayers starting business activity or small taxpayers, i.e. taxpayers whose revenues for the previous tax year did not exceed EUR 2 million gross (the limit was increased from January 1, 2020 - previously amounted to 1.2 million euros). In turn, for taxpayers settling PIT in the form of a lump sum, the income limit is EUR 25,000.

What is also important, the taxpayer will not lose the right to pay quarterly advances even in the event that he does not make the appropriate marking, but he paid quarterly advances - this was emphasized in the tax explanations of September 27, 2019. However, if the taxpayer did not pay advances despite their occurrence, and Moreover, he did not declare in the annual tax return the quarterly settlement of income tax, then the tax authority will assume that the advance payments should be calculated on a monthly basis, as no circumstances indicate a different will of the taxpayer (no payments, no choice). The monthly tax settlement is the statutory form of payment of income tax liabilities.

Paying advances quarterly without selecting the appropriate item in the annual tax return informing about the selection of quarterly PIT payment, does not mean that the taxpayer will lose the right to pay advances in this form.

On the other hand, entities that started operating in a given tax year or in the year preceding a given tax year are deprived of the possibility of paying simplified advances.

Alternative forms of settlements in connection with keeping full accounting

As of January 1, 2019, the obligation to notify the tax authority in writing (alternatively by CEiDG) in the event of:

• the intention of optional bookkeeping in accordance with the Accounting Act,

• intention to calculate exchange rate differences in accordance with the Accounting Act,

• the intention to choose a tax year other than the calendar year (note! This applies only to CIT taxpayers).

As in the case of quarterly and simplified advances, a notification of the above can be made in the submitted annual tax return.

Let us recall that pursuant to Art. 2 clause 2 of the Accounting Act, "natural persons, partnerships of natural persons, partnerships of natural persons and enterprises in succession, general partnerships of natural persons, partnerships and enterprises in decline operating in accordance with the Act of 5 July 2018 on the succession management of an enterprise of a natural person and other facilities related to succession of enterprises (Journal of Laws, item 1629), if their net revenues from the sale of goods, products and financial operations for the previous financial year amounted to at least the equivalent of EUR 2,000,000 in the Polish currency”.

The above-mentioned entities with revenues lower than EUR 2 million may voluntarily keep trading books, and such a possibility is provided for in Art. 24a paragraph. 5 of the PIT Act. The authority is notified only by checking the appropriate box in the submitted annual tax return.

Another alternative for entities keeping trading books is the possibility of calculating exchange differences in accordance with the Accounting Act (then the so calculated exchange differences may constitute tax costs / revenues). The taxpayers may also notify the authority about the intention or resignation from the use of this method in the annual tax return without the need to send a letter on this matter. However, one should bear in mind the restrictions related to this methodology of calculating exchange rate differences, because the choice of calculating exchange rate differences in accordance with the Accounting Act may not be changed for at least three consecutive tax years, and financial statements prepared by taxpayers should be audited by an auditing company.

The intention to voluntarily keep accounting books and calculate exchange rate differences in accordance with the Accounting Act may be expressed in the annual tax return from January 1, 2019.

Optional recognition of income from advances recorded at the cash register

Tax Acts, i.e. the PIT Act and the CIT Act, provide the possibility of optional recognition of income as advances received, which have been recorded at the cash register.

Let us remind you that the advance on the basis of income tax does not entail the obligation to recognize income, as it is not definitive. Taxpayers who collect advance payments for future benefits, which are recorded in the cash register, have the option of recognizing the income on the day such payment is collected. The adoption of this methodology in the form of recognition of income from advances recorded at the cash register requires that this fact be notified in the annual tax return (previously it had to be done in writing). However, it should be remembered that adopting this form of settlement requires its consistent application throughout the tax year.

Change of the form of taxation - flat tax and lump sum

Although the choice of the above-described optional forms of settlements may be made in the submitted annual tax return, it should be borne in mind that the form of written (alternatively via CEiDG) notification is still valid for the choice or resignation from taxation with a flat or lump sum taxpayer. In addition, completely different deadlines apply.

The above should be done by the 20th day of the month following the month in which the first income on this account was achieved in the tax year, or by the end of the tax year, if the first such income was achieved in December of that tax year - and not in the filed annual tax return.

The procedure is still different in the case of choosing / resigning from taxation in the form of a tax card - here also applies in the form of a written notification or via CEiDG, however, until January 20 of a given tax year.

Due to the fact that the selection of optional forms of settlements may be made in the annual tax return, while the application for taxation with a flat tax, lump sum or tax card should be submitted in writing (or through CEiDG) at completely different dates, you should be particularly vigilant to in an unintentional way not to cause harm to yourself or your customers.