What is the split payment ?

Split payment, or split payment model, applies to VAT and operates in several countries, such as the Czech Republic, Turkey or Italy. The reason for implementing such a solution in the above-mentioned countries, and thus in Poland, is the increasing tax gap in VAT. What is the split payment mechanism? Who will it be obligatory for?

This mechanism will be applied in the case of transactions in which the payment is made by means of an electronic cash system. The assumption of split payment is to divide the payment into a net price, which is paid by the buyer to the current account of the supplier, and VAT, i.e. an individual taxpayer’s bank account, which is to serve the VAT settlement. It is also used to pay VAT directly to the account of the tax authority.

Split payment mechanism is one of the solutions proposed by the European Commission in the “Feasibility study of alternative methods to improve and simplify the collection of VAT.

Its main advantage over other mechanisms include reverse payment or the central register of invoices is the fact that it is a systemic, preventive and long-term solution, the divisional payment model will prevent the occurrence of fraud already at the stage of the transaction itself.

Applying the split payment mechanism divides the gross amount into two payment streams. The net amount is separated and paid to the seller, while the VAT tax is transferred to a special bank account. A VAT account is an individual account number created for each taxpayer. The taxpayer can freely dispose of funds accumulated on this account. A bank account can either be created in any bank or it will be created in the bank of the tax authority. In Poland, tax authorities have accounts with the National Bank of Poland.

In the split payment model, the authorities can control the amount of VAT due already at the time of the transaction, from the moment the payment is made by the buyer. The tax authority has the opportunity to view the VAT account of the taxpayer, where the transactions are carried out in real time.

The split payment mechanism assumes that for a given settlement period (monthly / quarterly) after the declaration is submitted by the taxpayer, the taxpayer and the tax authority make mutual settlements of VAT based on the submitted declarations and the current balance of the VAT account. As a result, the taxpayer is shown whether he has VAT for the surcharge or can apply for a refund.

There are two main variants of the split payment mechanism. The first is to automate the division of the gross amount. A division occurs when making a payment for a good or service by the buyer. The buyer pays for transactions with one transfer order, but the amount is divided into the net amount and the amount of VAT. The automatic specially created settlement system, used for a given type of payment, or a bank, is responsible for distributing the payment. However, the second manual split payment system requires the buyer to separate the payment independently by making two separate transfer orders – a transfer to the value of the net payment addressed to the seller and a separate transfer to the value of the VAT tax, which should be paid to the VAT account.