What is the split payment?
Split payment, or split payment mechanism, is a VAT settlement system introduced in Poland to reduce fraud and tax evasion. It involves splitting payments for goods and services into the net and VAT amounts. Thanks to this solution, VAT goes directly to a particular VAT account held by a bank, making tax fraud more difficult. Split payment was introduced in Poland in July 2018 and has since been applied to many transactions.
How does split payment work?
The split payment mechanism works as follows: when the buyer pays for an invoice, the net amount goes to the seller’s current account, while the VAT amount is transferred to a particular VAT account. This account is maintained by a bank or SKOK and is used exclusively for VAT-related settlements. In this way, VAT is kept separate from the company’s current funds, which reduces the risk of its misuse.
An example of how split payment works:
1. the buyer receives an invoice for PLN 10,000 net + PLN 2,300 VAT.
2. When making the payment, the buyer transfers PLN 10,000 to the seller’s current account and PLN 2,300 to the seller’s VAT account.
3. the bank automatically divides the payment, transferring the VAT amount to the corresponding account.
Split payment mechanism - what goods does it cover?
The split payment mechanism covers certain goods and services vulnerable to tax fraud. The list of these goods and services is included in Appendix 15 of the VAT Law and includes, among others:
- Electronics (televisions, computers, cell phones),
- Steel and metal products,
- Coal and coke,
- Waste and secondary raw materials,
- Certain construction services.
Businesses that trade in these goods or provide these services must use the split payment mechanism.
Split payment - when is it mandatory?
Split payment is mandatory in certain situations, according to the VAT Law. It mainly applies to transactions that meet the following criteria:
- The gross value of the invoice exceeds PLN 15,000,
- The transaction involves goods or services from Appendix 15 of the VAT Act.
The seller must include the annotation “split payment mechanism” on the invoice in such cases. Failure to make such an annotation may result in the imposition of sanctions by the tax authority.
Split payment mechanism - how do you make a transfer?
Making a transfer under the split payment mechanism is simple but requires accuracy and attention. To make a payment, follow the steps below:
1. Select the split payment option in electronic banking: In the electronic banking system, select the option of split payment transfer or transfer to a VAT account.
2. Enter the transfer data: In the transfer form, enter the net amount, the VAT amount, the invoice number, and the vendor’s tax ID number.
3. Checking the data: Before approving the transfer, carefully checking all entered data is a good idea to avoid errors.
4. Approval of transfer: Approve the transfer after entering and checking the data. The bank will automatically split the payment, transferring the VAT amount to the seller’s VAT account.
The split payment mechanism significantly improves transaction transparency and reduces the risk of tax fraud. Sellers and buyers are equally obligated to use split payment, so both parties must know their responsibilities.
Summary
Split payment is an effective tool in the fight against tax fraud, which involves splitting the payment for goods and services into a net amount and VAT. This mechanism is mandatory for certain transactions involving goods and services listed in Appendix 15 of the VAT Act and exceeding a gross value of PLN 15,000. Entrepreneurs must remember to mark invoices and correctly execute split payment transfers properly. By doing so, they can avoid sanctions and ensure the transparency of their business operations.
