Transferring excess VAT to a PIT (personal income tax) advance is a popular procedure among businesses in Poland that helps them manage their tax liabilities efficiently. Depending on the company's financial situation, the excess can be transferred to overdue, current or future income tax liabilities. Each of these options, however, requires the right procedure and the correct documents.
The mechanism of transferring excess VAT to PIT advances is particularly useful for businesses that experience periodic fluctuations in liquidity or whose activity involves high capital expenditure. Thanks to this procedure, you can avoid a situation where you are waiting for a VAT refund on the one hand and have income tax liabilities on the other.
What is excess VAT
Excess VAT is a situation where an active VAT taxpayer shows in a given settlement period more input VAT than output VAT. This means that the input VAT on purchase invoices exceeds the output VAT on the sales invoices issued by the business.
Excess VAT arises when input VAT is higher than the output VAT reported in the JPK_V7 (VAT return with records, SAF-T file). It may relate to the current settlement period, the previous period or several previous settlement periods at once. It most often occurs in companies investing in fixed assets or exporting
Excess VAT can arise in various business situations. It often occurs in businesses that have made significant investments in fixed assets or equipment and deducted the VAT on the purchase invoices. In later periods, when sales generate output VAT at a level similar to input VAT, the excess from previous periods may remain.
Businesses that provide services mainly to clients outside Poland are particularly likely to have excess VAT. In such cases, sales are often subject to the 0% VAT rate (export of goods, intra-Community supply) or are not taxable in Poland (services whose place of supply is abroad) while the right to deduct is retained (Article 86 section 8 point 1 of the VAT Act), whereas domestic purchases generate deductible input VAT. VAT-exempt sales, as a rule, do not give the right to deduct, so on their own they do not create an excess.
Excess VAT often occurs in businesses that provide services mainly to clients outside Poland and in companies exporting goods or making intra-Community supplies of goods. In such cases sales are often subject to the 0% VAT rate, while the business keeps the right to deduct input VAT on domestic purchases
A fall in sales combined with higher spending on investment also leads to excess VAT. This may concern companies undergoing restructuring, modernisation or expansion. In such cases the excess can remain for several settlement periods.
Ways to use excess VAT
An active VAT taxpayer with an excess has several options for using it. The first is to leave the excess to be settled in subsequent settlement periods. This means that in the following months or quarters the business will pay less VAT or may even increase the excess.
The second option is to claim a refund of the excess VAT in full or in part to the business account or the special VAT account. This procedure requires making the appropriate request in the declaration part of JPK_V7 and may involve an audit by the tax office (urząd skarbowy). We complete the declaration part of JPK_V7, including refund requests, for clients who use our accounting services.
A business can leave excess VAT to be settled in later periods, claim a refund to its account or use it to settle other taxes. The third option includes transferring it to overdue, current or future tax liabilities
The third, particularly interesting option is to use the excess VAT to settle other taxes. This may concern overdue, current or future liabilities. For businesses, the option used most often is transferring excess VAT to PIT advances.
This last option is particularly attractive for businesses that have regular liabilities for monthly or quarterly income tax advances. It helps optimise cash flow and avoid a situation where you are waiting for a VAT refund on the one hand and have tax liabilities to settle on the other.
Types of transfers of excess VAT to PIT advances
Transferring excess VAT to PIT advances can take three basic forms, which differ in the time the income tax liabilities relate to. Each of these forms requires the right procedure and the correct fields to be completed in the VAT return.
The first form is transferring excess VAT to a future PIT advance. Businesses choose this option when they want to cover their future income tax liabilities in advance. The procedure requires making the appropriate request in the declaration part of JPK_V7.
Transferring excess VAT to PIT advances may concern three time situations: future tax liabilities, current liabilities and overdue liabilities. Each option requires the right procedure in the VAT return or may happen automatically, by the tax office's own action
The second form is transferring to a current PIT advance. This means covering income tax liabilities for the period in which the VAT return is filed or for the period immediately preceding it. Businesses with current tax liabilities often use this option.
The third form is transferring to an overdue PIT advance. In this case the excess VAT is used to cover income tax liabilities left unpaid from previous periods. Note that for overdue liabilities the tax office can make the offset automatically, without the taxpayer having to file a request.
Procedure for transferring to a future PIT advance
Transferring excess VAT to a future PIT advance requires the taxpayer to act by making the appropriate request in the declaration part of JPK_V7. The procedure is regulated in detail and requires specific fields of the return to be completed.
The first step is to check the amount of excess VAT shown in item 53 of the declaration part of JPK_V7. This amount is the basis for further steps and sets the maximum amount that can be transferred or refunded.
- Check the amount of excess VAT in item 53 of the declaration part of JPK_V7
- In item 54, enter the amount to be refunded and transferred
- Choose the appropriate VAT refund period
- Tick the box in item 59 for offsetting against future liabilities
- Enter the specific amount to be transferred in item 60
- State the type of future tax liability in item 61
In item 54 of the VAT return you must state the amount to be refunded, which will then be transferred to a future PIT advance instead of being refunded to the account. The taxpayer can decide to transfer all or only part of the excess VAT
In item 54 the taxpayer enters the amount to be refunded. This is the amount that will be transferred to a future PIT advance instead of being refunded to the business account. The taxpayer can decide to transfer the whole excess or only part of it.
Next, choose the VAT refund period, which matters procedurally for the tax office. In item 59 the taxpayer ticks the box indicating a request to offset the tax refund against future tax liabilities.
In item 60 you enter the specific amount, out of the amount shown in item 54, that is to be offset against a future PIT advance. The taxpayer can allocate part of the amount to the transfer and part to a refund to the account. In item 61 you state the type of future tax liability to which the amount will be transferred.
After the transfer, the remaining excess VAT is shown in item 62 of the declaration part of JPK_V7. This amount can be used in the future or left to be settled in later periods.
Transfer to current and overdue PIT advances
Transferring excess VAT to current or overdue PIT advance liabilities has certain procedural differences compared with transferring to future liabilities. For overdue liabilities, the taxpayer does not have to request the transfer actively, because the tax office can make the offset automatically.
Under the Tax Ordinance Act (Ordynacja podatkowa), overpayments together with interest are offset by the tax office of its own motion against specific liabilities in a set order. Priority goes to tax arrears with default interest, then default interest on unpaid advances, reminder costs and current tax liabilities.
The tax office automatically offsets the excess VAT intended for refund against tax arrears with default interest, interest on advances not paid on time and reminder costs (Article 76 § 1 in conjunction with Article 76b § 1 of the Tax Ordinance Act). Only after the offset does it transfer the remaining amount to the taxpayer's account
In practice this means that if the taxpayer has overdue PIT advances, default interest or reminder costs, the tax office will automatically deduct these amounts from the excess VAT before making the refund. The taxpayer will receive only the amount left after all overdue liabilities have been deducted.
After covering the overdue liabilities, the tax office checks whether the taxpayer has current tax liabilities. These may be not only PIT advances but also other taxes, such as income tax from annual tax returns or other tax liabilities.
| Order of offsets from excess VAT | Type of liability | Legal basis | Notes |
|---|---|---|---|
| 1. | Tax arrears with interest | Article 76 of the Tax Ordinance Act | Automatic offset |
| 2. | Default interest on advances | Article 76 of the Tax Ordinance Act | No taxpayer request |
| 3. | Reminder costs | Article 76 of the Tax Ordinance Act | Enforcement costs |
| 4. | Current tax liabilities | Article 76 of the Tax Ordinance Act | All types of taxes |
The automatic offset procedure is convenient for taxpayers, who do not have to remember to file additional requests to transfer amounts to overdue liabilities. At the same time, it may surprise those who expect the full excess VAT to be refunded to their account.
Practical aspects of transferring excess VAT
Transferring excess VAT to PIT advances brings businesses a number of practical benefits. Above all, it helps optimise the company's cash flow, reducing the need to wait for a VAT refund while paying income tax liabilities at the same time.
This solution is particularly beneficial for companies with high turnover that regularly generate significant excess VAT. Instead of waiting for a refund and then paying the money towards PIT advances, they can settle their tax liabilities in one step.
Transferring excess VAT reduces the need to wait for a refund while paying PIT liabilities at the same time. It is particularly beneficial for exporters, businesses providing services outside Poland and businesses making significant investments in fixed assets
Exporters and companies providing services mainly outside Poland often have a structural excess of VAT. For such businesses, transferring it to PIT advances can be a permanent part of their tax strategy, allowing them to settle liabilities regularly without using extra cash.
Businesses investing in growth, buying fixed assets or modernising often have periodic excess VAT. The transfer lets them use this excess efficiently to cover current tax liabilities, which improves liquidity.
Remember, however, that this procedure has certain limitations. Transferring excess VAT to future PIT advances requires careful planning of tax liabilities. If the actual liabilities turn out lower than the amount transferred, the taxpayer will have to apply for a refund of the overpayment.
- Optimising the company's cash flow
- Less waiting for a VAT refund while paying PIT at the same time
- Particularly beneficial for exporters and service companies
- Useful for businesses making significant investments
- Requires careful planning of future tax liabilities
- Can be a permanent part of the company's tax strategy
A practical example
Consider a Polish business owner keeping a KPiR (tax revenue and expense ledger) who had an unpaid advance for November 2022 of PLN 900. In the declaration part of JPK_V7M for October 2023 they reported excess VAT of PLN 6,500.
The business owner decided to apply for a refund of the entire excess VAT. However, only PLN 5,500 was paid into their account. The difference resulted from the tax office automatically deducting the overdue PIT advance together with default interest and reminder costs.
A trading company specialising in exporting furniture regularly generated excess VAT because its sales were taxed at 0%. The owner decided to transfer the excess VAT systematically to future PIT advances, which allowed him to cover his tax liabilities regularly without using additional operating cash.
The tax office automatically deducts all overdue tax liabilities from the excess VAT before making a refund. This includes not only overdue PIT advances but also default interest and reminder costs shown on the taxpayer's account
This situation shows how important it is to manage tax liabilities consciously. A business owner who regularly monitors liabilities and excesses can plan cash flow better and avoid surprises caused by automatic offsets.
For companies with regular excess VAT, it is worth considering systematically transferring it to future PIT advances. This allows better financial planning and helps avoid a situation where you are waiting for a VAT refund on the one hand and have liabilities to settle on the other.
Legal and procedural aspects
The legal basis for transferring excess VAT to PIT advances is Article 76 of the Act of 29 August 1997 - Tax Ordinance Act, which applies accordingly to tax refunds under Article 76b § 1. This provision sets out in detail the rules for offsetting overpayments against various tax liabilities and the order of offsets. We describe the procedure step by step in our article on offsetting a VAT refund against other tax liabilities.
Under this provision, overpayments together with interest are offset by the tax office of its own motion against tax arrears with default interest, default interest on unpaid advances, reminder costs and current tax liabilities. Only if there are no current liabilities are overpayments refunded by the tax office of its own motion.
Article 76 of the Tax Ordinance Act is the legal basis for automatically offsetting VAT overpayments against other tax liabilities. The taxpayer can also apply for the overpayment to be offset in whole or in part against future tax liabilities
It is also important that the taxpayer has the right to apply for the overpayment to be offset in whole or in part against future tax liabilities. This right is particularly important for financial planning and managing the company's liquidity.
The procedure for transferring excess VAT to PIT advances is closely linked to the JPK_V7 system, which is the main tool for settling VAT in Poland. All the necessary fields and options have been built into this system, which makes it easier for taxpayers to make the relevant requests.
Remember also that transferring excess VAT to PIT advances does not affect the reporting obligations related to income tax. The business owner does not file monthly or quarterly returns for PIT advances, but must still report the advances in the annual tax return, including those covered by excess VAT (Articles 44 and 45 of the PIT Act).
Audits and verification by the tax office
Transferring excess VAT to PIT advances, like other tax procedures, may be audited by the tax office. The tax authority has the right to verify whether the requests made are correct and whether the declared amounts match the taxpayer's actual liabilities.
Transferring excess VAT to future PIT advances requires particular attention. In this case, the tax office may monitor whether the actual tax liabilities match the amounts transferred. If it turns out that more was transferred than the actual liabilities, the taxpayer will have to apply for a refund of the overpayment.
The tax office can check whether excess VAT has been transferred to PIT advances correctly and verify whether the declared amounts match the actual liabilities. In the case of a transfer to future liabilities, the authority can monitor how these liabilities are settled
An audit may also cover whether the excess VAT was calculated correctly and whether there is a right to its refund. The tax office has the right to check the source documents on which the excess was calculated and verify whether the input VAT was deducted correctly.
If irregularities are found, the tax office may challenge part or all of the excess VAT, which will affect whether it can be transferred to PIT advances. The taxpayer will then have to correct the return and possibly pay the difference.
To avoid problems during an audit, keep reliable documentation of all operations related to transferring excess VAT. This includes keeping copies of the returns filed, source documents and correspondence with the tax office.
Tax and financial planning
Transferring excess VAT to PIT advances can be part of wider tax and financial planning in the company. This is particularly important for businesses with variable cash flows or seasonal activity.
Exporters that structurally generate excess VAT can use the transfer mechanism as a permanent element of liquidity management. This helps avoid a situation where the company is waiting for a VAT refund while having current income tax liabilities.
Transferring excess VAT can be part of tax planning, particularly for exporters, businesses providing services outside Poland and businesses with seasonal activity. It allows better liquidity management and cash flow planning
Businesses with seasonal activity can use the transfer to even out tax liabilities across different periods of the year. In months with lower turnover, when excess VAT arises, it can be allocated to future PIT advances falling in periods of higher business activity.
Planning transfers, however, requires a careful analysis of forecast tax liabilities. The business owner has to estimate future income and the resulting PIT advances to avoid an overpayment or a shortage of funds to cover liabilities.
It is also worth considering the effect of the transfer on the company's cash flow. Although it reduces the need to wait for a VAT refund, it also means that the money will not reach the business account and will not be available for other operating purposes.
- Analysing the company's revenue and cost structure
- Assessing how regularly excess VAT arises
- Forecasting future PIT advance liabilities
- Planning cash flow taking the transfers into account
- Monitoring the tax and financial effects of the decisions made
- Adjusting the strategy to changes in the business
