In the European Union (EU) member countries lose billions of Euros worth of Value Added Tax (VAT) each year due to VAT fraud, VAT non-compliance and dated VAT collection processes. A solution for this issue has been sought for quite some time. Some EU countries have been introducing measures to reduce the VAT gap (expected VAT vs collected VAT) and make their systems more fraud-proof.
Poland’s President has recently signed a bill into law, which will see a major change to their VAT payment structure from the 1st July 2018. A new VAT split payments system will come in operation which will replace the existing VAT collection method.
How does it work?
The new VAT split payments system will see a split between the net amount of the transaction and the VAT amount. The net amount will be paid directly to the suppliers account, and the VAT amount will be paid directly to a separate individual VAT account of the supplier. The banks in Poland will be opening a separate VAT account for every business account holder, these will be opened free of charge. To qualify for this new payment process, both the supplier and the purchaser will need to hold an account that is under Polish banking regulations. This will apply to all foreign entities registered for VAT in Poland and that have Polish bank accounts.
What will happen in practice is a single payment will be made for the actual transaction, and it will be split into two by the bank itself. If an invoice is issued and paid in a foreign currency, the payment will not qualify for the new process. Polish banks will have to adjust their systems, if they are instructed by the recipient of an invoice, the bank will split the payment to send the VAT directly to the supplier’s VAT account, while the net amount will be sent to it’s business account. The purchaser will need to provide the following details to the bank to facilitate this: the invoice number, the suppliers VAT number, and the net amount and VAT amount.
Other similar payment types in EU countries
Poland are not the first EU country to try this, similar types of VAT split payments have been introduced in both Romania and Italy. However, the Polish one has a much larger scope than Italy’s, as it will be for all VAT registered businesses in Poland. In Romania, the new payment process was not optional but in Poland it will be optional for now. Time will tell if it will become mandatory.
How will it affect business in Poland?
Given that suppliers will be in a VAT credit position, this may affect their Cashflows. The funds that will be in the VAT account will belong to the supplier but they will not have direct access to them. These funds may only be spent to:
- Pay invoiced VAT to the VAT account of the invoice sender.
- Pay VAT to the Polish Tax Office.
Transfers from the VAT account to the companies’ business account may be possible, however they would need strict approval from the Polish tax office.
The new VAT split payments system will require the payer to supply full details of each invoice to be paid, the VAT amount to be paid, invoice numbers, and tax ID of payee. This would affect the possibility of making bulk payments and would require a change in the way invoices are processed. The largest impact of the split payment mechanism is the rise of administrative costs to businesses because of the payment of VAT on a transactional basis and increased reporting requirements. The impact on costs for businesses is however highly dependent on the number of transactions conducted by the individual business and thus varies depending on business size and sector.
Business impacts will be:
- Cashflow restrictions.
- New procurement and payment processes.
- Large increase in Administration costs.
- Operation of IT/Accounting environment.
How can Cashbook help with Split Payment processes in Poland?
Cashbook have been preparing for the VAT split payments system in Poland and have made the necessary changes to our product. The huge increase in administrative costs can now be reduced with automation of the split payments system through Cashbook. This will reduce the amount of extra time that will be required by staff, it will also eliminate any manual errors that may be caused by staff. These manual errors could result in incorrect VAT amounts being paid into the specific VAT accounts which money can only be taken out to pay other VAT liabilities. Resulting in extra headaches and make your cash flow situation even worse.
With Cashbook’s Accounts Payable module, clients can receive payments from their vendors by email, PDF, checks or paper remittances. Clients then pay their invoices in their ERP system and Cashbook will create the necessary banking file, which will include all details of the split payment – the VAT amount to be paid, the net amount to be paid, invoice number, and tax ID of payee. Such integration will bring huge efficiencies and massive cost savings, the company can also employ Cashbook as a single payments platform across multiple sites if required. The Cashbook Accounts Receivable module, automates the uploading and cash application of customer remittance data from a bank file directly into the ERP system. Cashbook automatically uploads the bank files and runs specific auto-matching on the remittance files. The Cashbook Bank Reconciliation module, can also help you with the reconciliation of your bank accounts and your new VAT specific bank account.
If you do business in Poland and you are worried about how the VAT split payments process will affect your business, call Cashbook today and discuss how we can automate this process for you. Request a discovery call with our team or call +353 61 338 400 or alternatively you can send us an email at email@example.com.