Contractors not paying you? Be aware of bad debt reliefs
The difficult economic situation, rising inflation and high interest rates, disruptions in the supply chain - these are some of the challenges facing business today. This causes some entrepreneurs to fail to pay their obligations on time. The question arises whether due taxes - income and VAT - have to be paid on unpaid invoices.
– A taxpayer who has not received payment for an invoice from his or her counterparty may benefit from bad debt relief. This preference applies to both income and VAT taxes. This means that if there is no payment for an invoice, there is a possibility of correcting declared tax. This is also confirmed by the Ministry of Finance in one of its recent announcements,” recalls Grzegorz Arczewski, tax adviser, senior manager at Thedy & Partners.
How to take advantage of the bad debt relief in VAT? The regulations give taxpayers the opportunity to correct tax on receivables relating to taxable activities that have not been settled or disposed of within 90 days of the due date.
– Certain conditions must also be met. For example, the taxpayer must be registered as an active VAT payer on the day preceding the submission of the adjustment and no more than three years have elapsed since the end of the year in which the invoices were issued. If the counterparty is an entity that is not an active VAT taxpayer, it is necessary to enter the debt in the register of debts, or confirm it with a final court ruling and direct its execution, or the debtor has to be a declared bankruptcy consumer, adds Grzegorz Arczewski.
It is also worth remembering that the purchaser is obliged to correct the deducted amount of VAY resulting from an unpaid invoice, not later than on the last day of the settlement period in which the 90th day, counting from the payment deadline passed. Once the amount due has been paid, both the creditor and the debtor make a return adjustment.