Of the mechanisms designed to make it easier for honest entrepreneurs to operate, great attention is paid to split payment. The system introduced in July 2018 is almost intended to revolutionise payment methods, even though split payment is not mandatory so far.
The mechanism
Split payment is based on payments for goods and services, which are divided into two parts. The first is the net amount and the second is the fiscal burden, namely VAT. The payment is automatically divided by the bank, which would make things easier for entrepreneurs. The net amount goes to the supplier’s (principal’s) company account, while the rest goes to a special bank account, controlled by the Tax Office. Importantly, an additional bank account is created automatically.
Reverse charge
The split payment mechanism is based on the reverse charge, which is a payment system that has been operating for years in the construction industry, among other things. The system passes the test when a general contractor subcontracts a service to a subcontractor with an individual contract with a strategic investor. According to the reverse charge principle, the subcontractor is obliged to issue a VAT invoice with the reverse charge, i.e. in the analysed situation the entity responsible for the settlement with the tax office is the general investor or the contractor. It is possible because a subcontractor invoices a net amount for his services, i.e. he will not have to apply to the tax authorities for a refund of the previously collected tax for the construction materials purchased.
Additional risk burden
While for small businesses, reverse charges are a convenient mechanism and sometimes the only way to maintain liquidity, for larger players it is risky. Voluntary split payment, as practice shows, operates with a delay and often the clients wait a long time for their due tax refunds. But still, voluntary split payment (this may change in 2019 and the mechanism will be mandatory for some industries) to honest entrepreneurs for guaranteeing many non-material benefits as well.
It is a paradox that the benefits to honest businesses of split payments may be less than those achieved by defaulting entrepreneurs. It turns out that companies that are in arrears with their civil law liabilities do not need to fear that money will be withdrawn from the debtor’s account. As it follows from the regulations, the account of the Act may be debited “solely for the purpose of execution of the seizure on the basis of an administrative writ of execution relating to the enforcement of claims under the value added tax”.
There will be improvements
The split payment, which has been in operation since July 2018, requires both clarification and careful observation of how the new regulations will affect entrepreneurs. When, thanks to the split payment mechanism, priority is given to the payment of liabilities of any kind, the question arises as to whether it should be possible to pay possible debts from VAT bills, including those of the Social Security Institution (ZUS) or PIT?
