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Cash-basis PIT: what does it mean and what benefits will it bring small businesses?
On 29 October 2024, the President signed the act introducing so-called cash-basis PIT. Aimed mainly at small businesses, this change is intended to simplify and facilitate tax settlements. What exactly is cash-basis PIT, who can use it and what are its benefits? This article presents the details and analyses how the amendment affects Polish businesses.
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What is cash-basis PIT?
Cash-basis PIT is a method of settling income tax in which businesses can recognise revenues and costs only once they receive payment from a counterparty. This is an important change from the previous approach, under which taxpayers had to recognise revenues and costs regardless of when payment was received. Businesses thus avoid paying tax on revenue that has not actually reached them.
Who is cash-basis PIT intended for?
The new method of recognising revenues and costs is intended for small businesses whose annual revenues do not exceed PLN 1 million. In addition, it is available only to businesses that do not keep full accounts or accounting books. It will therefore mainly appeal to smaller businesses using simplified accounting.
What benefits does cash-basis PIT bring?
Protecting liquidity Cash-basis PIT supports business liquidity. For companies with lower revenues, not having to pay tax immediately on unpaid invoices can significantly improve their ability to meet current liabilities.
Bad debt relief Cash-basis PIT allows the use of bad debt relief if a counterparty fails to meet payment obligations. This means businesses can deduct unpaid receivables from revenue, further protecting them against the consequences of non-payment.
Clearer, simpler settlements Businesses no longer have to recognise revenues that have formally been earned but have not actually been paid. Simplified accounting thus becomes more intuitive and better aligned with the company's actual cash flows.
Reduced tax risk Under the previous system, businesses faced tax risk from having to pay tax on revenues that had not yet materialised in practice. Cash-basis PIT significantly reduces this risk, particularly for small companies that may struggle to respond quickly to tax liabilities.
An example of cash-basis PIT
Suppose a small company issued an invoice for PLN 10,000 in November 2024. Under the previous rules it would have had to pay tax on the amount when the invoice was issued, whether or not payment actually reached its account. Under cash-basis PIT, the business owner must pay the tax only when the counterparty actually settles the amount, or at most within two years of the invoice being issued. If payment is not received, the company can use bad debt relief, allowing costs to be recognised regardless of the counterparty's payment.
Disadvantages of cash-basis PIT
Although cash-basis PIT has many advantages, some limitations are worth noting. Above all, it is intended only for small businesses. Companies keeping full accounts cannot use this settlement model. In addition, some business owners may find it challenging to maintain orderly payment records, which are essential to monitoring deadlines.
What changes may businesses face in the future?
Although the cash-basis PIT act has already been signed, further amendments may be expected. For example, the revenue limit for using this settlement model might be raised, making cash-basis PIT available to more businesses. The government has announced further tax-law changes for small and medium-sized companies, suggesting that cash-basis PIT is just the beginning of a broader reform to simplify tax rules.
If you found this article interesting, explore our tax advisory services and read how we can help you:
Summary
Introducing cash-basis PIT is a major change requiring appropriate preparation and adjustments to a company's accounting system. TaxCoach accounting firm offers support in understanding the new rules and making the necessary changes to accounting practices. Our specialists will help optimise settlements and provide comprehensive accounting services adapted to the new rules. With our knowledge and experience, businesses can be sure their settlements comply fully with regulations, allowing them to focus on growth.
Do not wait: contact TaxCoach today to find out how we can help your company adapt to cash-basis PIT and other tax regulations.
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