Split Payment

Changes in VAT - Split Payment

Split Payment

What is a split payment mechanism?

In accordance with the changes in the VAT regulations which will come into force on July 1, 2018, the buyer of the goods / services, when paying to their supplier, will be entitled to apply the split payment mechanism, i.e. to transfer part of the price (net amount) to ‘standard’ Bank account of the seller, and to pay the amount of VAT into their ‘VAT account’.

The VAT account will be owned by every entrepreneur. According to the amendment, banks will be obliged to set up the VAT account - without concluding additional agreements or collecting fees - for every entrepreneur who has an account related to their business activity in a particular bank.

Why will the split payment mechanism negatively affect the financial liquidity of taxpayers?

Although the funds accumulated on the VAT account will formally belong to a taxpayer, in practice their availability will be significantly limited. The VAT account will be used only for specific purposes, in particular for the payment of the VAT amount to suppliers on their VAT accounts and for the VAT to be paid to the tax office. The funds accumulated on the VAT account won’t be used for many other purposes, for example to pay employees' wages or to pay net price to the suppliers.

To withdraw funds from the VAT account to their ‘standard’ bank account, a taxpayer will have to apply to the head of the tax office who will have 60 days to issue a decision on release of funds. The tax authority will be authorized to refuse withdrawal of funds from the VAT account if it comes to the conclusion that there is a risk that the taxpayer will not fulfill their tax obligations.

To sum up, the funds on the VAT account will be, in a way, ‘frozen’ and taxpayers will not be able to use them freely.

Will many taxpayers use a split payment mechanism?

Theoretically, the use of split payment will be voluntary. In practice, it can be expected that taxpayers who will receive payments from their contractors using a split payment mechanism will want to use the funds transferred to their VAT accounts. The easiest way to use these funds will be to pay to their suppliers applying the split payment mechanism. As a consequence, it can be expected that over time more and more taxpayers will use the analyzed method of payment.

The split payment mechanism will be most likely applied by companies owned by the State Treasury as well as by the territorial government units.

Who will be affected the most by the split payment regulations?

The split payment mechanism will affect in particular those companies whose clients are VAT taxpayers regulating their liabilities through bank transfers and which finance their current operations with VAT amounts received from contractors.

Although the planned changes are aimed at reducing tax fraud, the effects of it may hit honest taxpayers too. It needs to be noted that the government works on other changes in legislation which are aimed at reducing risks associated with fraudulent actions of taxpayers’ contractors. Such changes are believed to improve the situation of honest entities.

How can we help?

It is important for entrepreneurs to be aware of risks and to set up procedures related to VAT settlements with suppliers. If you need support to reduce the risk associated with unconscious participation in fraud or incorrect VAT settlements, we encourage you to contact us.

We may also assist in preparation of budgets and cash flow forecasts which would help you to estimate the impact of the split payment mechanism on the financial liquidity of your company.


For more information, please contact us.
Izabela Kuśmierz-Latała
Izabela Kuśmierz-Latała
CEO, Partner