Which entrepreneurs can make advance payments of personal income tax without filing a return during the tax year? By what date should this form of advance payment be chosen?

The rules of the simplified form of paying advance payments are regulated in Article 44 Paragraphs 6b-6i of the Law on p.d.o.f. The possibility of paying advance payments in a simplified form may be used by taxpayers conducting non-agricultural business activity - both those who are taxed on the general principles according to the scale, as well as those who have opted for 19% flat tax.
Paying advance payments in a simplified form can be advantageous for taxpayers earning high incomes at the beginning of the year and incurring losses in the later months of the year (the resulting overpayment of tax will be refundable only in the next tax year - within 3 months of filing the annual return).
However, the simplified form of advance payment should not be chosen by taxpayers who anticipate that they will not earn income during the year, as they will have to make advance payments throughout the tax year after choosing this form.

Income forming the basis for calculating advance payments

As indicated above, taxpayers who earn income from non-agricultural business activities may - without the obligation to file monthly returns (PIT-5 or PIT-5L) - pay monthly advances in a simplified form.
The amount of advance payments is determined on the basis of income from non-agricultural economic activity, shown in the return on the amount of income earned / loss incurred (PIT-36 or PIT-36L) composite:

1. in the tax year preceding the tax year in question, or
2. in the tax year preceding the given tax year by two years - if in the return referred to in item 1, taxpayers did not show income from non-agricultural economic activity or showed income from this source in an amount not exceeding PLN 2,790. If also in this tax return taxpayers did not show income from non-agricultural economic activity or showed income from this source in an amount not exceeding PLN 2,790, it is not possible to pay advance payments in a simplified form.

Therefore, in order to take advantage of the simplified form of advance payment in 2006, one must take into account the income reported in the 2004 tax return, filed in 2005, or the 2003 tax return, filed in 2004. However, income earned in 2005 should not be taken into account.

Example:
Alina O. wants to use a simplified form of advance payment. In her 2004 return, she showed a loss, and in her 2003 return. - income, exceeding the amount of PLN 2,790. In this situation, in 2006 she can make the choice mentioned above.

The basis for determining the amount of advance payments in 2006 must be income resulting from a return no earlier than the return filed for 2003. If the taxpayer reported a loss or income in an amount not exceeding PLN 2,790 in the 2004 return and in the 2003 return, then the taxpayer may not pay advance payments in a simplified form.

Example:
Jan K. in 2003 carried out activities taxed as a lump sum on registered income. In 2004, on the other hand, he conducted a non-agricultural business activity taxed on a flat tax and incurred a loss from this activity in that year. Jan. K. would like to make advance payments in 2006 in a simplified form. The fact that he incurred a loss in 2004 does not by itself exclude such a possibility. However, the additional circumstance that in 2003. Jan K. carried out activities taxed in the form of a lump sum on registered income, makes it impossible for him to take advantage of the simplified form of paying advance payments. This is because the basis for calculating advance payments should be income calculated in accordance with the rules set forth in the P.D.O.F. Act, not income, which is the basis for taxation on a lump sum from registered income.

Rules for calculating advances

Taxpayers taxed according to the general rules - according to the tax scale pay advance payments in the amount of 1/12 of the amount calculated using the scale in effect for the tax year, on the income shown in the tax return. On the other hand, taxpayers who are subject to a flat tax in a given tax year and who have chosen the simplified form of paying advance payments, calculate the amount of advance payments on the income shown in the relevant tax return, using a tax rate of 19 percent.

Example:
Dariusz N., who conducts business activity taxed in the form of a flat tax, earned an income of PLN 77,640 in 2004 . This means that the advance payments in 2006 will amount to PLN 1,229, 30 per month. This amount is 1/12 of PLN 14,751.6 (19% x77,640 PLN=14,751.60). Dariusz N. will make the final settlement by April 30, 2007.

A letter from the First Tax Office Warsaw - Śródmieście dated March 19, 2003, ref. US35/FD1/415/12/04/MT, referred to the rules for calculating advance payments paid in a simplified form. The taxpayer doubted whether the basis for calculating advance payments could be income after deducting losses from previous years. The referenced letter stated that: "The basis for calculating the amount of the monthly advance payment due in 2004 using the simplified form is the income from non-agricultural economic activity earned in 2002, not income less deductions."
The amount of the advance to be paid, shall be reduced by the amount of the health insurance premium paid in a given month in accordance with the provisions on health care services financed from public funds.

Worth knowing:
A taxpayer carrying out non-agricultural activity, paying advance payments in a simplified form and at the same time paying a health contribution for a person cooperating with him, may reduce the advance payment for income tax by this contribution as well (so the letter of the Tax Chamber in Gdansk of February 27, 2004, ref. BI/005-0083/04).

Obligations of the taxpayer

Taxpayers who have opted for a simplified form of advance payment are required to:

1. until February 20 of the tax year in which they first chose the simplified form of advance payment, notify in writing the competent head of the tax office of their choice of this form,
2. use a simplified form of advance payment throughout the tax year,
3. make advance payments by the 20th of the month for the previous month and
4. make a tax settlement for the tax year by filing a return by April 30 of the year following the tax year.

The notice on the choice of the simplified form of advance payment also applies to subsequent years, unless the taxpayer - by February 20 of the tax year - notifies in writing the competent head of the tax office of the abandonment of the simplified form of advance payment.
The simplified form of advance payment may not be used by taxpayers who have started their business for the first time in the tax year or in the year preceding the tax year.

Example:
Stefan O. started his business in June 2005, while Adam C. intends to start in February 2006. Both of them cannot take advantage of the simplified form of advance payment. This is because only a taxpayer who was already operating in 2004 can use this method in 2006.

Correction of the statement
It may happen that a taxpayer makes a mistake in determining the amount of income in a return filed for the year preceding the tax year. If he corrects this return, which will result in a change in the amount of the basis for calculating monthly advance payments made in a simplified form, the amount of these advances:

1. shall be increased or decreased in accordance with the change in the amount of the basis for their calculation - if the corrective return was filed with the tax office by the end of the year preceding the year in which advance payments are paid in a simplified form,
2. shall be increased or decreased starting from the month following the month in which the correction was filed, in accordance with the change in the amount of the basis for their calculation - if the correction return was filed in the year in which advance payments are paid in a simplified form,
3. does not change - if the corrective return was filed later than those mentioned in points 1 and 2.

The above rules will also apply if the competent tax authority or the competent tax inspection authority determines a different amount of income from non-agricultural business activity than the amount of income from this activity shown in the return or in a corrective return.

Change of business forms and simplified form of advance payment

Taxpayers doing business in the form of partnerships can also make advance payments in a simplified form. For such taxpayers, however, doubts arise as to whether it is possible to use the simplified form of advance payments if there is a change in the partnership's composition or if they start an independent business.

Examples:

1. Wieslaw K. operates as a partner in a civil partnership. In March 2006, one of the partners is going to leave the partnership. In this situation Wieslaw K. has doubts whether the remaining partners will be able to continue paying advance payments in the simplified form. As a rule, self-employed taxpayers who have chosen the simplified form of paying advance payments are obliged to pay them in the simplified form, throughout the tax year. A change in the composition of the company does not result in the loss of the right to use the simplified form of paying advance payments.
2. Janina. M. has been self-employed since 1996. As part of this activity, she pays advance payments in a simplified form. Since January 1, 2006. Janina M. intends to start additional business in the form of a civil partnership. The question is whether she can use the simplified form of advance payments for this new activity. As indicated above, taxpayers are required to use the simplified form of paying advance payments throughout the tax year. In the case of Janina M., the choice she has made in this regard applies to all forms of business activity, taxed under the rules of the p.d.o.f. Act. Janina M. is not undertaking a new activity, but is expanding her business with a civil partnership. The provisions of the p.d.o.f. Law, on the other hand, refer to economic activity - without distinguishing non-agricultural economic activity conducted on its own or in the form of a civil partnership.
3. Piotr T. had been a partner in the general partnership since 2002. In September 2005, he additionally began operating an independent business. In 2006. Piotr T. wants to make advance payments in a simplified form. This is permissible. This is because Piotr T. did not start his business activity for the first time in 2005, so Article 44, paragraph 6e of the p.d.o.f. Act does not apply, stipulating that the simplified form of paying advance payments cannot be used by taxpayers who started their business for the first time in the tax year or in the year preceding the tax year.

Legal basis: Act of July 26, 1991 on personal income tax (Journal of Laws No. 14, item 176, as amended).