The provisions of the so-called Polish Deal 2.0, in force since July 1, 2022, allow for a unique tax law option to change the form of taxation of business activity income after the end of the tax year. This solution, intended to give entrepreneurs a chance to choose the most appropriate form of settlement in the face of extensive changes introduced in 2022, carries a number of risks.
Polish Deal - new rules of taxation and contributions
2022 was full of changes that caused many problems not only for taxpayers, but also for professional accountants and tax advisors. As a result of imperfections in the initial regulations, further modifications were introduced, which ended with the adoption of the so-called Polish Deal 2.0, in force from 1st July. For entrepreneurs, this brought specific consequences:
- Taxpayers taxed according to the scale (progressive tax) are no longer allowed to deduct even a part of the health insurance contribution from the tax due. However, the lower tax rate has been reduced from 17% to 12%.
- Entrepreneurs who are taxed according to 19% flat tax pay health insurance contributions in the amount of 4.9% of income (but not less than 9% of the minimum wage). Part of the contribution, up to a certain limit, can be included in tax deductible costs or deducted from income.
- Entrepreneurs taxed according to lump sum tax pay health insurance contributions in the amount of 9% of the basis, which in turn depends on the amount of generated income. Contributions cannot be deducted from tax, but it is possible to reduce the tax base by 50% of paid contributions (decrease in income).
Such significant amendments introduced during the tax year resulted in changes in the tax and contribution burdens for many entrepreneurs. Therefore, the legislator allowed for the possibility of changing the form of taxation for the entire 2022 tax year until the end of the deadline for submitting the tax return for this year, i.e. until May 2, 2023.
PwC Commentary
The possibility of changing the form of taxation along with the submission of the tax return for 2022 means certain limitations and pitfalls. First of all, it should be taken into account that:
- only switching to tax scale is allowed
taxpayers taxed according to flat or lump sum tax may choose to be taxed according to the scale, but entrepreneurs who pay progressive tax during the year cannot opt for a flat or lump sum tax. It is also impossible to change from a lump sum to a flat tax and vice versa.
- the change in the form of taxation for 2022 applies only to this tax year
as a rule, the taxpayer selects the form of taxation by the 20th day of the month following the month in which he achieved the first income in the tax year or by the end of the tax year, if the first income was achieved in December. As a result, entrepreneurs continuing their activity in 2023 must still choose the form of taxation by February 20, 2023. Otherwise, they will have to settle as they did in 2022, regardless of any change in the form of taxation made by submitting returns for 2022.
- when analyzing the most advantageous form of taxation, one should take into account more than changes only to tax amount
the choice of settlement according to progressive tax for 2022 will also impact the manner of paying health insurance contributions. As a consequence, an individual who pays premiums according to the rules applicable to flat or lump sum taxpayers, will be forced to recalculate them for the entire year, cover the difference with interest and correct official documents.
- changing the form of taxation also means additional formalities
in particular, persons taxed during the year on a lump sum basis and keeping just records of revenues will be forced to open and complete the revenue and expense ledger backwards.
- the change of the form of taxation for 2022 cannot be undone
if a taxpayer submits on time (May 2, 2023) a tax return appropriate for their current form of taxation (PIT-36L for flat tax payers and PIT-28 for lump sum tax payers), they will not have a chance to choose the scale, even if they correct the tax return and submit the form PIT-36 form.
It goes without saying that before making a final choice, every entrepreneur must deeply analyze their situation and simulate all the tax and contribution burdens for 2022. They must also take into account that the amount of the health insurance contributions usually increases when switching to a scale, and people who have been settling their income with a lump sum tax will have to complete the ledger of revenues and expenses for the entire year. The most important deadline still falls on 20th February - this day is the last moment to choose the form of taxation for 2023.
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