The split payment method is a mechanism with which a payment for a service is delivered to two separate accounts of an entrepreneur. Net invoice value is credited to the seller’s company bill, and the VAT is moved to a dedicated VAT account. This model functions in several countries, e.g. Czechia, Turkey, Italy, or Poland. The mechanism’s role is to tighten the tax system, which in turn improves the collectability of taxes.
Funds from a VAT bill can be allocated for liabilities such as:
- Contributions to Social Security Institution (ZUS),
- VAT payment to the tax office,
- CIT, customs, excise tax.
It is worth mentioning that in some cases, the split payment method is mandatory when the following events occur:
- The invoice amount is at least 15,000 PLN,
- The transaction parties are companies,
- The invoice is for a service or for sensitive goods.
Sensitive goods are e.g. petrol, steal, computers and mobile phones, etc. These are the products that can be tied to VAT offenses or extortions.
Companies that use this method enjoy the following benefits:
- Reduction of the tax amount,
- No joint and several liability.
Software suppliers also need to prepare for a few possible scenarios:
- Invoice financing by split payment; the contractor pays with the same method,
- Invoice financing by split payment; the contractor pays with another method,
- Invoice financing by something other than split payment; the contractor uses split payment,
- Invoice financing without split payment method; the contractor also without split payment method (through mechanisms used before the law was introduced).
What’s more, factors need to take into consideration partial payments, which in factoring occur often as well. There is also the issue of financial institutions having to secure themselves against joint and several liability.
For factors, a definite upside of the whole system is the opportunity to increase their earnings. Clients who use the split payment method understand that 23% of the amount will be “frozen” on the VAT bill, and consequently they should safeguard themselves and talk to a factor or another financial institution about the possibilities to increase the factoring limit.
Factoring Product Manager at Comarch