Changing the form of taxation - how to do it?

With the end of the tax year, taxpayers often consider changing the form of taxation of business activities. The analysis of the revenues and costs of the passing year has a significant impact on this. In some cases, changing the form of taxation may bring real profits in the form of a lower tax payable, so it is worth getting acquainted with this topic today.

What forms of taxation are there to choose from?

Taxpayers running a business can tax it in four ways: according to general rules (the so-called tax scale), flat rate tax, flat rate income tax or a tax card. Each of the indicated forms of taxation is characterized by a different rate of income tax and the method of its calculation.

General principles (tax scale)

Undeniably, it is one of the most frequently chosen forms of taxation of business income. It is characterized by a two-stage scale, in which income up to PLN 85,528 is taxed at the 17% income tax rate, while the surplus is taxed at a 32% rate. In the case of this form of taxation, it is possible to include in the calculation of the tax liability the amount reducing the tax (in 2021 it will still amount to PLN 525.12), tax reliefs - incl. Internet, pro-family, rehabilitation and thermo-modernization concessions, and there is also the possibility of joint settlement with the spouse in the annual tax return and deduction of the donation. General rules are often applied by micro-entrepreneurs whose income does not exceed the first tax threshold, generate operating costs and are taxed at the 17% rate. A detailed description of the form of taxation on general principles is presented in the article: Progressive income tax - general principles, tax scale.

Linear tax

The second most frequently used form of taxation is characterized by a fixed income tax rate of 19%, which is independent of the amount of income obtained. In the case of this form of taxation, it is not possible to settle jointly with the spouse, apply most tax credits, the amount that reduces the tax and deduct most of the donation. It is possible to deduct in the testimony, inter alia, donation made for the purposes of vocational education to public institutions. Undeniably, the greatest advantage of this form of taxation is the fixed tax rate, so the flat tax is chosen by taxpayers with an annual income of at least PLN 100,000. zloty. More about the flat tax is explained in the article: Flat tax in business - advantages and disadvantages.

Checked lump sum

Lump sum forms of taxation differ from others in that the tax is calculated on the value of income, and not - as in the case of general rules and flat tax - on income (income less costs). A taxpayer may reduce the tax liability by the value of paid ZUS contributions. The compensation for the inability to recognize costs are relatively low tax rates (from 2021): 17%, 15%, 10%, 8.5%, 5% and 3%. Pursuant to Art. 6 section 4 and section 6 of the Act on flat-rate income tax from taxation in the form of a lump sum in 2021 may be used by taxpayers who in the year preceding the tax year, among others:

• they obtained revenues from this activity, carried out solely on their own, in the amount not exceeding EUR 2,000,000 or

• they obtained revenues only from activities conducted in the form of a company, and the sum of revenues of the partners of the company from this activity did not exceed the amount of EUR 2,000,000;

• they start to operate in the tax year and do not benefit from taxation in the form of a tax card - regardless of the amount of income;

• they operated independently or in the form of a company, the revenues from which were taxed only in the form of a tax card, or for part of the year were taxed in the form of a tax card and for part of the year on general terms, and the total revenues in the year preceding the tax year did not exceed 2,000 000 euros.

The act on flat-rate income tax in art. 8 additionally indicates groups of taxpayers which - mainly due to the type of activity performed - cannot use this form of taxation; these are, among others taxpayers earning revenues from running pharmacies, buying and selling foreign currency or trading in parts and accessories for motor vehicles. Lump sum taxation along with examples is discussed in more detail in the article: Lump sum on registered income - everything you should know.

Tax card

The second and last form of taxation is the simplest form of taxation. In the case of a tax card, the amount of tax does not depend on the amount of revenues, but is determined top-down, taking into account: the size of the business and its specificity, the size of employment and the population of the locality where the business is conducted. Pursuant to Art. 30 sec. 1 of the Act on flat-rate income tax, the amount of tax to be paid is finally determined by the tax office on the basis of a decision issued separately for each tax year. The tax may be reduced by the value of the health insurance premium paid. The advantage of this form of taxation is that there is no obligation to keep books, submit tax returns and make advance payments for income tax. Detailed information on the tax card is described in the article: Tax card - the simplest form of business taxation.

The most frequently asked question regarding the choice of the form of taxation

Question: What form of taxation will be most beneficial to my business?

Answer: The choice of the appropriate form of taxation depends on the specific nature of the business, the amount of revenues and costs incurred. If the taxpayer only provides services as part of his business and estimates that his total income with his spouse will not exceed PLN 171,056 per year, the general rules will probably be the optimal form of taxation, as income will be subject to tax at 17% tax rate and it will be possible to take advantage of tax reliefs. tax and recognition of tax deductible costs, which will reduce current tax liabilities. High-income taxpayers will certainly be interested in taxation on a flat-rate basis, i.e. a fixed 19% tax rate calculated on income. On the other hand, taxpayers providing services, e.g. construction services, under which they incur virtually no costs, will certainly choose a flat rate recorded at the rate of 5.5% calculated on the basis of income.

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Changing the form of taxation - available dates

The end of the current year and the beginning of the next are the best times to change the form of taxation, mainly due to the applicable deadlines. Pursuant to Art. 9a paragraph. 2 of the PIT Act, changes in the form of taxation should be made by the 20th day of the month following the month in which the first income was achieved in a given tax year, or by the end of the tax year, if the first such income was achieved in December.

In the case of a tax card, the form of taxation should be changed by January 20 of the tax year. If the taxpayer does not make the change within the indicated deadline, it will be the same as his continued use of the tax card.

Example 1.

In 2020, Mr. Wiesław conducted taxable activities on general principles. From 2021, he would like to change the form of taxation to a flat tax due to the projected higher increase in operating revenues. By what date should he change the form of taxation, if the first income in 2021 is to be achieved in February?

In the above case, Mr. Wiesław should change the form of taxation up to March 20, 2020.

Example 2.

In 2020, Ms Iwona taxed revenues from her activities in the form of a tax card, while due to the recently incurred costs, she decided to change the form of taxation to general rules. By what date should it make the change and will it be able to settle accounts jointly with the spouse receiving the income from the employment contract in 2021?

Ms Iwona must change the form of taxation from the tax card to general rules by January 20, 2021. Then, in the settlement for 2021, she will be able to settle accounts together with her spouse.

Example 3.

Mr. Łukasz runs a shop with auto parts. In 2020, its activities are taxed according to general rules. In 2021, he would like to switch to lump-sum taxation. Will it be possible in the case of Mr. Łukasz?

It will not be possible to change the form of taxation in 2021 into a recorded flat rate, as revenues from the sale of car parts are excluded from the use of this form.

The most frequently asked question about the date of tax change

Question: Can I change the form of taxation during the tax year, when the deadline has passed?

Answer: As a rule, changes in the form of taxation in terms of flat tax, general rules and lump sum on recorded revenues can be made during the year by the 20th day of the month following the month in which the taxpayer earned the first income in the tax year, or until the end of the year. a tax year, if the first such revenue was achieved in December of a given tax year. In the case of a tax card (resignation or notification), the change must be made by January 20 of the tax year from which the change is to apply. Thus, it is not possible to change the form of taxation after the expiry of the indicated deadlines. Failure to meet the deadline for change results in the continuation of the binding form of taxation.

How to change the form of taxation?

In order to change the form of taxation, it is enough to submit an update of the CEIDG-1 form, in which the declared form should be marked in box 18.

The application can be submitted in person, by post, using a trusted profile online or by signing it with a qualified signature.

Pursuant to Art. 29 sec. 1 of the Lump-sum Income Tax Act, in the case of choosing a tax card, it is additionally required to submit an application according to the established formula (PIT-16) to the head of the tax office by January 20 of the tax year.

Failure to change the form of taxation or submitting the application after the deadline results in the continuation of the previously declared form of business taxation. Information on how to complete the CEIDG-1 application together with the template is available in the article: CEIDG-1 form with an overview - data update.

Change in the form of taxation in the wFirma.pl system

Users of the wFirma.pl system, at the time of changing the form of taxation, are required to note this change in the system settings so that the generated income tax advances / annual tax return take into account the appropriate tax rates. To do this, go to the SETTINGS »TAXES» INCOME TAX tab, where you can choose from:

• Type of records: BOOK OF INCOME AND EXPENDITURE AND RECORD OF REVENUE (Lump sum);

• Taxation form (visible if indicated as KPIR record type): GENERAL RULES or LINEAR TAX.

It should be remembered that changes in the form of taxation in the system need to be made only after the settlement (calculation of the income tax advance) of the last month or quarter of the previous year. After implementing the change to the current form of taxation, the tax return for the previous year will be able to be generated in accordance with the previous form of taxation.