Polish Businesses Embrace Split Payment: Transactions Up Nearly 5%

According to the latest data from the Ministry of Finance, in the first half of 2024, the number of transactions executed using the split payment mechanism amounted to over 48.7 million. This is 4.9% more than in the same period in 2023. This increase does not come as a surprise to experts. They say that taxpayers usually use this solution because they want to feel safer in any eventual contact with the tax office. They also add that an increasingly visible package of incentives is observed. Several significant changes in the regulations also contributed to the increase, such as those of July 1st, last year, as part of the SLIM VAT3 package, where amendments to the regulations concerning the split payment mechanism were made.

More transactions

According to data from the Ministry of Finance, in the first half of 2024, the number of transactions using the split payment mechanism (SPM) was exactly 48,718,286. This is 4.9% more than in the same period in 2023 when there were 46,450,429. According to tax advisor and legal counsel Marek Wanat from the consultancy firm Deloitte, this is a significant increase, but without detailed data from the Ministry of Finance, it is hard to anticipate its main cause i.e., to what extent it is related to an increase in the number of transactions in which the SPM is mandatory and to what extent it is optional.

– It may potentially have to do with the extension of possibilities for disbursing funds from the VAT account (this change came into effect as of July 1, 2023), as well as an increasing desire of taxpayers to secure due diligence. In our practice, we often observe that taxpayers in their procedures for new contractors indicate the split payment mechanism as the default method of settling liabilities. Such actions are rational because tax authorities have limited possibilities to question the right of VAT deduction in the case of SPM – explains the Deloitte expert.

The increase in the number of transactions does not come as a surprise to tax advisor Magdalena Jaworska from the Quidea law firm. She points out that this payment system for VAT taxpayers is quite prevalent, and a rise in the number of payments as part of the split payment has occurred in the past, especially when it was preceded by a change in regulations.

Amending the regulations

– In 2023, there were several significant changes concerning the split payment. On July 1st, last year, as part of the SLIM VAT3 package, amendments to the regulations regarding the split payment mechanism were made. These were changes in favor of taxpayers which might have led to the increase in payments made as split payments. Among other things, the list of entities that could benefit from the privileges resulting from the use of the split payment mechanism was extended. The change relates to the situation of paying the tax amount from the received invoice also by a taxpayer other than the one indicated on the invoice, for example, a factor. Additionally, the list of payments within which the VAT Account funds can be unlocked was expanded – explains Magdalena Jaworska.

In the expert’s opinion, the split payment in Poland has achieved its set goals. This mechanism has contributed to an increased VAT collection, faster VAT returns, reduced administrative burdens and costs on the part of entrepreneurs, as well as an increase in the certainty of economic turnover. That’s why in July 2021, a derogatory request was sent to the European Commission to grant the authorization to implement the mandatory SPM for the next 3 years, i.e., from March 1, 2022, to February 28, 2025. Maciej Hadas, a partner and tax advisor at Grant Thornton, agrees with this positive evaluation.

– In my opinion, the SPM has proved its worth. It is a solution that significantly reduces the risk of VAT fraud. It is beneficial for honest taxpayers who limit their liability for dishonest actions of contractors by using the SPM. The growing number of transactions covered by SPM seems to confirm this success and market acceptance of this solution – says Maciej Hadas.

Benefits motivate

Marek Wanat also noticed that taxpayers increasingly use SPM on a discretionary basis, as the preferred method of accounting for material operations, for example, real estate transactions. Magdalena Jaworska highlights the benefits of using the split payment. These include no increased default interest and accelerated tax refund. However, the most important thing is that there are no VAT penalties and joint and several liability.

– And finally, it should be remembered that using the split payment is also an element of the taxpayer’s due diligence, especially in the case of sensitive industries, exposed to VAT abuse. There is another practical aspect of using the split payment mechanism. Some companies have simply adopted that all payments will be made using the split payment without distinguishing standard transfers in this respect. In addition to aspects related to protection against the risk of non-compliance with the split payment mechanism, especially in the form of a sanction – an additional tax obligation of 30% of the tax amount indicated on the invoice, this is also motivated by operational reasons – explains the expert.

Magdalena Jaworska also adds that people making payments in this way do not need to analyze whether a given expense is obligatorily subject to the split payment mechanism in order to separate it for payment using the VAT account. Tax advisor Maciej Hadas points out that SPM significantly reduces the risk of VAT fraud.

– It is beneficial for honest taxpayers who limit their liability for dishonest actions of contractors by using the SPM. The growing number of transactions covered by SPM as such seems to confirm this success and acceptance of this solution by the market – summarizes the expert from Grant Thornton.