Recently, the lump sum as a form of PIT settlement has become an enticing option for IT industry entrepreneurs. However, choosing the lump sum for it not only has its advantages but also comes with drawbacks that deserve attention.
Lump sum for IT – positive changes
Starting from January 1, 2021, individuals in the IT industry running sole proprietorships or partnerships (PIT payers) could benefit from a 15% lump sum rate on recorded revenues (instead of the previous 17%). As of January 1, 2022, the basic rate for the IT industry was further reduced to 12%.
Another positive change was the increase in limits for lump sum recording, from the previous EUR 250k to EUR 2 million. Therefore, since 2021, entrepreneurs generating revenues from business activities or partnerships up to approximately PLN 9 million can opt for this form of taxation.
WHY LUMP SUM IS BENEFICIAL?
The lump sum should be seen as a simplified way of settling income tax, where the taxpayer primarily accounts for the revenues achieved (with no possibility to deduct costs). Lump sum rates are lower than the flat tax rate (ranging from 3% to 17%). Consequently, there is no obligation to keep a revenue and expense ledger (only a simplified revenue record). Moreover, due to amendments introduced by the so-called New Deal, for a significant group of taxpayers, the health insurance contribution will be much more favorable than when choosing a flat tax or the tax scale.
This solution is, therefore, a tempting alternative for individuals incurring minimal business operation costs and unable to benefit from tax reliefs (e.g., IP Box). Mainly, representatives of the IT industry, such as programmers, testers, software architects, graphic designers, network administrators, consultants, and advisors, can take advantage of this change.
BEWARE OF SEVERAL PITFALLS WHEN CHOOSING THE LUMP SUM
Changing the form of taxation to lump sum recording can be done once a year. In principle, changes to the form of taxation should be made by the 20th day of the month following the month in which the taxpayer earned their first income in the tax year. For most taxpayers, the crucial date will be February 20 each year.
When choosing lump sum recording, keep in mind that:
- There is no possibility to reduce earned revenues by the costs of obtaining them. Therefore, this solution is ideal for individuals who do not incur significant fixed costs during the year. Of course, a slight exception is the ability to deduct part of the social security contributions from revenues.
- Joint PIT settelment with a spouse and under the rules for single parents is not possible. Unfortunately, by choosing the lump sum for business income, you cannot jointly file with your spouse income obtained, for example, from employment, even if they are taxed on general terms.
- You will not benefit from family relief (child tax credits) if this is the only source of the taxpayer’s income.
- No possibility to take advantage of a significant portion of tax reliefs, including the so-called IP Box relief.
- You cannot choose the lump sum for recorded revenues if you intend to provide the same services as those performed under an employment contract for your former employer (period of 2 years).
- Lump sum is a form of income tax, unrelated to the issue of VAT registration or non-registration. Lump sum and VAT are two completely separate matters.
- When choosing the lump sum, decide which lump sum rate is appropriate—separately for each type of services provided (or rather, for each type of revenue obtained).
- Lump sum may negatively affect your creditworthiness! It happens that banks look unfavorably at lump sum because they do not fully see the costs incurred by the taxpayer, and therefore they may assess the creditworthiness of such an entrepreneur lower.
Lump sum for IT – how can we help?
From 2022, changing the form of taxation to lump sum recording will gain popularity as one of the ways for entrepreneurs to avoid the negative consequences of the new “Polish” order. This will apply particularly to programmers (basically 12% lump sum rate), designers (basically 14%), manual testers, or network administrators (optionally 8.5%). Remember that to safely and advantageously change the form of taxation, proper preparation is required. We support our clients by verifying the possibility of applying a more favorable lump sum rate in their business activities (analysis of the contract and performed activities, preparation of opinions for the Central Statistical Office, applications for interpretation to the National Tax Administration, and changes in the Central Register and Information on Economic Activity). If you have questions about applying the lump sum, visit www.outsourced.pl .
This is the first of a series of posts explaining the essence of the lump sum in the IT industry. More publications will follow shortly.
