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Although the law introducing mandatory split payment entered into force in 2019 and the mechanism has operated in Poland for almost seven years, it still raises many questions and doubts among businesses. What is split payment, when is it mandatory, and what sanctions apply if you fail to use it? This article answers these questions.
Split payment: what is the mechanism?
Split payment, or the split payment mechanism, is one way of paying invoices in B2B dealings, meaning transactions between businesses. It involves ordering a special transfer, known as a transfer message, from a business bank account or a credit union account. Unlike a standard transfer, the payment does not go entirely to the recipient's account. It is divided into the net amount, paid to the seller's account, and the VAT amount, paid to the seller's VAT account.
In the transfer message, specify:
- The amount corresponding to all or part of the VAT shown on the invoice;
- The amount corresponding to all or part of the gross sales value;
- The number of the invoice being paid;
- The supplier's or service provider's NIP tax number.
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Who can use split payment? When can you not use it?
Under Article 108a(1) of the VAT Act, taxpayers who have received an invoice showing the tax amount may use split payment when settling it.
If you are a business and VAT taxpayer and have purchased goods or services from another business, you may pay the invoice received, showing a VAT amount, using split payment by selecting the transfer message in your account.
Split payment cannot be used:
- For transactions in which you are a consumer not conducting business, namely B2C transactions;
- For invoices with no VAT amount specified, such as invoices or bills issued by VAT-exempt taxpayers;
- For cash or card payments.
When must you use split payment? Is it mandatory in e-commerce too?
Split payment is voluntary in most cases. Usually, we as buyers of goods or services from other businesses decide whether to use it or settle an invoice in another way.
Article 108a(1a) of the VAT Act, however, clearly sets out when split payment becomes mandatory.
It concerns payment for goods or services listed in Annex 15 to the VAT Act, the so-called sensitive goods and services, documented by an invoice whose total value exceeds PLN 15,000 or its equivalent in foreign currency.
What sensitive goods and services trigger mandatory split payment when the invoice value exceeds PLN 15,000? Some examples are:
- Hard coal and lignite, and briquettes and similar fuels made from them;
- Vegetable and animal oils and fats;
- Various rods, pipes and tubes;
- Raw, semi-processed or powdered gold and silver, and investment gold;
- Electronic integrated circuits, computers, hard drives, mobile phones, television receivers and game consoles;
- Cameras;
- Electric batteries and their parts;
- Parts for internal combustion and spark-ignition engines;
- Parts and accessories for office machinery;
- Jewellery and other jewellers' products and their parts;
- Various types of waste;
- Construction work on residential and non-residential buildings, roads, motorways and streets;
- Insulation, gas, heating, ventilation, air conditioning, water, sewage and electrical installations, and fencing work;
- Plastering and concreting work.
Remember: even one such item on an invoice whose total value exceeds PLN 15,000 makes split payment mandatory for that item!
Mandatory split payment: beware of sanctions for non-compliance!
For some entities, split payment is mandatory in certain circumstances. What happens if we forget to use it after purchasing the relevant goods or services?
Unfortunately, there is a sanction. Article 108a(7) of the VAT Act provides that, if a payment violates split payment rules, the head of the tax office or customs and tax office will assess an additional tax liability equal to 30% of the tax attributable to purchased sensitive goods or services listed in Annex 15 and shown on the invoice concerned.
That liability is not assessed for individuals who are liable for a fiscal offence or fiscal crime for the same act. The sanction also does not apply if the supplier or service provider from whom we bought the goods or services correctly accounted for the full VAT amount shown on the invoice.
If this article interested you, explore our e-commerce accounting services and see how we can help:
Summary
Do you operate in e-commerce or another industry and need to use split payment? Or would you like to use it voluntarily because of its many benefits, such as the presumption of due diligence or the absence of penalty interest on late payments?
If so, explore our extensive services! Every day we help clients with accounting, including e-commerce accounting, HR and payroll, and VAT matters.
Contact us today for comprehensive support for your business!
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