Back to publications Such a change is proposed in the draft amendment to the Value Added Tax (VAT) Act, submitted on March 19, 2024, to the Polish Parliament.
Currently, the basic method for VAT settlement is the so-called accrual method, under which the VAT liability arises at the moment of goods delivery or service provision.
An exception to this rule exists – the cash accounting method. Under this method, the VAT liability arises:
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On the date of receipt of all or part of the payment – in the case of sales to an active VAT taxpayer.
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On the date of receipt of all or part of the payment, but no later than 180 days from the date of delivery of goods or provision of services – in the case of sales to consumers.
The cash accounting method can be used by:
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Small taxpayers, i.e., entities whose gross sales value did not exceed 2,000,000 euros in the previous year.
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Taxpayers starting business activity, if their projected annual sales do not exceed 2,000,000 euros (if the taxpayer starts their business during the year, the limit must be calculated on a prorated basis).
The main disadvantage of using the accrual method is that the VAT liability arises regardless of whether the taxpayer has received payment for the goods sold or services provided. If the seller does not receive payment from the contractor, they are still required to settle VAT for that accounting period and pay the tax from their own funds. On the other hand, the current regulations do not make the VAT deduction dependent on prior payment for the invoice on which the tax is listed. Therefore, contractors who delay payment retain the right to deduct the VAT, even if they do not pay the invoice.
The draft bill of March 19, 2024, proposes that VAT liability would arise for everyone under the cash accounting method. Additionally, the right to deduct VAT from an invoice on the buyer’s side would be conditioned upon prior payment for that invoice.
It should be noted that the VAT system is subject to harmonization within the European Union. Member states must align their internal regulations on VAT with the standards set by EU law. Directive 2006/112/EC gives member states the option to apply the cash accounting method for VAT only to a limited category of taxpayers and transactions. Therefore, if the cash accounting method were to become the primary method of VAT settlement, the Polish government would need to submit a request for a derogation from the EU regulations in this regard.
The proposed change would undoubtedly positively affect the liquidity of businesses. The draft bill has been submitted to the Marshal’s office but has not yet been assigned a parliamentary document number.
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