Civil law contracts between private individuals in Poland are far more common than you might think. Most people associate contracts mainly with business activity carried on by specialised entities, but reality is much broader. Private individuals who are not entrepreneurs can also conclude civil law contracts with each other, commissioning one another to perform various tasks or make specific items.
Such contracts have legal and tax consequences that are worth knowing before you sign them. The key point is that not every contract requires one of the parties to be an entrepreneur. Some contracts do require this status, such as a leasing agreement, an agency agreement or a bank account agreement, but there is also a wide range of contracts available to ordinary private individuals. When one of the parties is a business, settling such contracts can be taken over by our accounting services.
Civil law contracts between private individuals are governed by the same legal rules as contracts concluded by entrepreneurs. The difference lies mainly in how tax is settled, as the person commissioning the work is not a withholding agent (płatnik). Private individuals may freely conclude contracts of mandate and contracts for specific work, but they must remember to settle the tax correctly
Basic types of civil law contracts for private individuals
Among the contracts most often concluded by private individuals who are not entrepreneurs, two basic types dominate: the contract of mandate (umowa zlecenia) and the contract for specific work (umowa o dzieło). Each has different features and requirements, which directly affects how the contract is performed and how tax is settled.
Features of a contract of mandate
A contract of mandate is a specific type of legal relationship in which the mandatary undertakes to perform a specified legal act for the mandator. There are two parties: the mandator, i.e. the person commissioning certain activities, and the mandatary, who accepts the mandate and performs it in line with the mandator's wishes and terms.
The fundamental feature of a contract of mandate is the focus on efforts aimed at performing the agreed activity, not on a specific result. Under Article 734 § 1 of the Civil Code (Kodeks cywilny), for legal acts, and Article 750 of the Civil Code, which concerns the provision of services not regulated by other provisions for factual activities, the distinguishing element is precisely the effort to perform the agreed activity.
A contract of mandate does not treat a result as a necessary element of the contract. What matters most is that the mandatary performs the subject of the contract with due care and in line with the mandator's wishes. A mandatary who acts with due care is not liable for non-performance if the purpose of the contract is not achieved
A common (though not necessary – a mandate may also concern a single activity) feature of a contract of mandate is the performance of a series of repeated activities over a specified period, regardless of the specific result they may bring. In this type of contract, it does not matter whether a particular end result is achieved – what matters most is careful performance of the subject of the contract as agreed.
A practical example is the Kowalski family, who needed someone to look after their dog during their summer trip. Because of the distance to their destination, they could not take the animal with them, so they decided to ask an 18-year-old neighbour who was looking for casual work during the holidays. They signed a contract of mandate with him for one week at a daily rate of PLN 100, covering looking after the dog.
Under the contract of mandate, the neighbour as mandatary performs repeated activities and must take all due care in performing them. The subject of the contract is not a specific result, but the mandatary's obligation to act carefully as agreed
The Court of Appeal in Łódź, in its judgment of 25 June 2019 (III AUa 1020/18), explained that a contract concerning services in the broad sense of the word cannot be treated as a contract for specific work, but as a contract for the provision of services. Repeated service activities performed over a certain period cannot be classified as a contract for specific work because of the continuity of the activities and their lack of a clearly creative character.
Features of a contract for specific work
A contract for specific work is a different model of legal relationship, in which the contractor undertakes to perform a specified work and the ordering party undertakes to pay remuneration. In this type of civil law contract, the most important element is achieving a specific result, which is the purpose of the contract.
A contract for specific work is a contract for a defined result of human work and skills. The contractor's efforts must lead to a specific, individually defined result in material or non-material form. The work must be possible to define as early as the conclusion of the contract
The essential feature of a contract for specific work is achieving a specific result individualised in the contract. In other words, performing the contract must produce a work that can be defined as early as the moment the contract is concluded. It may be a material or non-material product, but it must always have individual features resulting from the content of the contract.
The Court of Appeal in Łódź, in its judgment of 16 July 2019 (III AUa 393/18), stressed that the obligation to perform a defined work is the characteristic element of a contract for specific work, which makes it possible to distinguish it from other contracts classified as the provision of services. The work must exist in a perceivable form that makes it possible not only to distinguish it from other objects, but also to grasp the essence of the result achieved.
Practical examples of contracts
Example of a contract of mandate in practice
Let us look in detail at the Kowalski family and their contract with the neighbour. Under this contract of mandate, the neighbour undertook to look after the dog for one week for remuneration of PLN 100 per day. The subject of the contract was the systematic performance of repeated activities: feeding the animal, taking it for walks and arranging basic veterinary care if needed.
The key point of this contract was that the neighbour undertook to perform his duties carefully, but did not promise a specific result. If, for example, the dog fell ill despite proper care, the neighbour would not be liable for this, as long as he acted as agreed and with due care.
The mandatary's liability under a contract of mandate is based on the principle of acting with due care under Article 355 § 1 of the Civil Code. The mandatary does not take on the risk of a successful outcome, but undertakes to act with due care
Example of a contract for specific work in action
A second practical example is Mr Jan, who makes various wooden structures as a hobby, and Mr Mariusz, who asked him to design and build a dog kennel. The two signed a contract for specific work with remuneration of PLN 2,000.
In this case, the subject of the contract was a specific, individualised result – a dog kennel built to set dimensions and specifications. The work, although neither novel nor innovative, showed a certain degree of individuality and was made to order according to an individual design, so the specific end result was key.
The work under a contract for specific work is a product that does not exist when the contract is concluded, but is foreseen in it in advance and defined in a way that shows its individual features. It does not have to be novel, but it should have characteristic features that make it possible to check whether it was performed correctly
Differences between a contract of mandate and a contract for specific work
Understanding the differences between these two types of contract is essential for using and settling them correctly. The basic difference concerns the subject of the obligation and the way its performance is assessed.
The key differences are shown in the table below:
| Criterion | Contract of mandate | Contract for specific work |
|---|---|---|
| Subject of the obligation | Careful performance of activities | Achieving a specific result |
| Nature of activities | Often repeated, continuous | One-off, individualised result |
| Contractor's liability | For due care | For achieving the result |
| Remuneration | Often periodic (monthly, daily) | Usually one-off after completion |
| Possibility of withdrawal | Easier for both parties | Limited, especially after work has started |
Performing repeated activities, even when they lead to some measurable effect, cannot be understood as a one-off result and classified as performing a contract for specific work. The subject of a contract for specific work cannot be the achievement of successive, currently set results
In practice, classifying the contract correctly is often a problem. The key question is: do the parties focus on the process of performing the activities (contract of mandate) or on a specific end result (contract for specific work)? This difference is fundamental not only legally, but also for tax purposes. For people under 26, it also determines whether the PIT exemption for young people applies.
Tax aspects of contracts between private individuals
Tax settlement of civil law contracts concluded between private individuals requires particular attention. The basic difference compared with contracts concluded with entrepreneurs is that the mandator or ordering party is not a withholding agent.
No withholding agent
When a civil law contract is concluded between private individuals who are not entrepreneurs, neither the mandator under a contract of mandate nor the ordering party under a contract for specific work acts as a withholding agent. This means they are not obliged to calculate, withhold and pay income tax by the set deadline. Social insurance is a separate matter – for example, we describe ZUS contributions for pensioners on a contract of mandate in another article.
In a contract between private individuals who do not run a business, there is no withholding agent. Withholding agent obligations arise from the law (Article 41 section 1 of the PIT Act covers, among others, entrepreneurs and legal persons), so the parties cannot set them in the contract. The tax is settled by the taxpayer – the mandatary under a contract of mandate or the contractor under a contract for specific work
This differs significantly from contracts concluded with entrepreneurs, who usually act as withholding agents and must withhold and pay tax at source. With private individuals, the burden of settling the tax lies with the person receiving the remuneration.
Tax settlement methods
A person receiving remuneration under a civil law contract concluded with another private individual can choose between two basic tax settlement methods:
-
Monthly advance payments of income tax
- Payment to the tax office (urząd skarbowy) – voluntary; the advance is 12% of revenue reduced by 20% costs, and after the first payment further advances must be paid until the end of the year (Article 44 sections 1c–1d of the PIT Act)
- Deadline: by the 20th of the month following the month in which the income was earned, and for December – before the deadline for filing the annual return (Article 44 section 1f)
- Recommended for regular, monthly income
-
Annual settlement in the PIT-36 return
- Reporting the revenue under "other sources" (Article 10 section 1 point 9 of the PIT Act), with costs of 20% of revenue (Article 22 section 9 point 6)
- Filing the return in the year after the year in which the revenue was earned
- Deadline: from 15 February to 30 April of the following year (Article 45 section 1)
The choice of settlement method depends on the taxpayer and the nature of the remuneration received. For contracts of mandate with regular monthly remuneration, paying monthly advances makes sense. For contracts for specific work with one-off remuneration, annual settlement may be more practical
Practical aspects of choosing a settlement method
Monthly settlement – when to choose it
Monthly advance payments work particularly well for contracts of mandate where remuneration is paid regularly every month. For example, if someone regularly provides care, cleaning or other continuous services, paying advances regularly spreads the tax burden over time.
Advantages of this solution:
- Spreading the tax burden over time
- No need to set aside a larger amount for tax
- Greater control over tax settlements
- Easier personal budget planning
Annual settlement – the optimal solution
For contracts for specific work, where remuneration is usually paid once after the work is completed, annual settlement may be more practical. This method is less burdensome and does not require monthly formalities related to paying advances.
Practical example: Mr Mariusz commissioned Mr Jan to build a dog kennel for PLN 2,000. After completing the work, Mr Jan received the whole remuneration in one payment. In this situation, it will be more practical to settle this revenue in the annual PIT-36 return than to pay an advance for one month.
Every situation requires an individual approach and the relevant calculations depending on the specific facts. It is worth analysing the amount of revenue, how often it is received and any other sources of income before choosing a settlement method
Documenting civil law contracts
Proper documentation of a civil law contract between private individuals is essential from both a legal and a tax perspective. Although many contracts can be concluded orally, the written form provides greater legal certainty and makes any settlements easier.
Elements of a contract of mandate
A contract of mandate should include the following elements:
- Personal details of the parties (first name, surname, address, PESEL (national ID number))
- A detailed description of the subject of the mandate
- The way the activities are to be performed
- The amount of remuneration and payment dates
- The term of the contract
- Conditions for terminating the contract
Elements of a contract for specific work
A contract for specific work requires a precise statement of:
- The details of the parties
- A detailed description of the work to be performed
- The deadline for completing the work
- The amount of remuneration
- The conditions for accepting the work
- The rules of liability for defects
