There is still a difference between individual and business customers
Before deciding to buy equipment for a company, it is worth looking around on the Internet and making sure that the store you have chosen offers installments for companies on the same terms as for individual customers. Contrary to appearances, this is not obvious – an example is one of the largest electronic store chains in Poland, which decided not to issue VAT invoices for installment purchases for a company at all.
In many other stores, just getting the right document should not be a problem, but we have to reckon with the fact that a different interest rate may apply or that we will not see 0% RRSO installments on offer, although individual customers will be able to use such a form of financing without any obstacles.
Favorable installments for business
The trend in which stores seem to prefer individual customers, offering them multiple forms of installment sales, has clearly changed in recent years. More and more vendors are courting business customers as much as individual ones. So it’s much more common to see the words “0% installments” next to business offers. Where does this change come from?
Many online stores and marketplaces use third-party financing providers such as PragmaGO. They allow for a three-way arrangement whereby the business customer purchases from a particular store and the financing provider transfers funds to the vendor. The result? Customers can make deferred payments or take advantage of convenient business installments.
Each party benefits from such an arrangement. The financial solution provider earns money by implementing and operating its product. Stores or sales platforms gain a competitive advantage and expand their offerings. In the end, the customer wins by getting another payment method. It allows her to make corporate purchases with maximum flexibility.
Changes in the law
In recent years, the rules for recording invoices in business expenses have changed significantly several times – until the end of 2015, entrepreneurs used to post the full amount of the purchase invoice (thus increasing their expenses and reducing their income tax), but if they did not pay the installments on the due date, they had to include the amount they defaulted on and exclude it from expenses.
The law imposed this obligation on taxpayers if payment was at least 30 days late (with a payment term of 60 days or less) or 90 days late (with a payment term of more than 60 days). When the overdue installment was paid off, it was possible to include the corresponding amount back in business expenses.
Changes in 2016
In January 2016, the aforementioned obligations were abolished, and accounting for installment purchases in the Income and Expense Ledger (P&L) became somewhat simpler and more favorable – at least for buyers. As before, the entrepreneur took into account the entire value of the invoice (VAT payers the net amount, and VAT-exempt companies the gross amount). This allowed all taxpayers to deduct income tax on the basis of the full amount, while VAT payers further reduced their VAT.
However, this has led to situations in which dishonest entrepreneurs have reduced the amount of taxes they pay by including in their business expenses the amounts of invoices for which they have not paid at all. Accordingly, the affected vendors appeared to be those whose income (and therefore taxes) were “increased” by each time they entered into a sales contract – even if the counterparty did not pay from the beginning.
Current legal status (as of January 2020)
The January 2020 changes affect both sellers and buyers. The Personal Income Tax Law states that if a vendor has issued an invoice, but the amount due has not been paid within 90 days of the deadline specified in the document, the vendor may reduce income by the value of the unpaid sales invoice.
This revenue adjustment should be carried out by the seller when filing a PIT return in the year in which the due date was exceeded by 90 days.
Procrastination (including delays in installment payments ) leads to the need for analogous adjustments on the part of the buyer. Here, too, the time is specified – when 90 days pass from the due date, the tax base must be increased by the amount of unpaid installments.
How to account for an installment purchase?
Knowing the current legal status, we can book the installment purchase. The important thing is that we will settle the entire amount of the order at once, regardless of how many installments we spread the repayment over. We post the document, bearing in mind the date of issue.
If the equipment purchased by the entrepreneur is included in fixed assets, it will also be possible to depreciate the equipment, thus reducing income slightly.
Interest on installments
As we mentioned at the beginning of the article, there are times when entrepreneurs are not given the opportunity to purchase goods on 0% installments. An important piece of information is that if we make an installment purchase with interest, the accrued interest is tax deductible, but only after it has been paid. We can include them under “other expenses” (P&L, column 13). It will also be necessary to have the appropriate certificate to prove that the interest was paid along with the installment.
You can always buy on installments
Whether you are a businessman or buying as an individual, remember that the possibility of making a purchase on installments exists whenever this form of transaction is agreed upon by the parties involved. After all, buying equipment or merchandise at a major retailer is just one situation. There’s nothing stopping you from spreading out your payment for a service or production materials – especially if you’re doing business with a supplier you know well.
But that’s not all – even if the seller does not offer installment sales for businesses, you can still spread the payment for any business purchase into convenient installments. All you have to do is use PragmaGO’s purchase financing! This is an easy-to-use solution where you can finance part or all of your business purchases. All you need to do is place an order in the store, and send the received invoice to PragmaGO along with a completed application. This way you will spread the payment for your business purchases into 3, 6, 9, 12, 18 or 24 installments.
If you’re a business that operates in the B2B sector, be sure to sell your sales invoices and gain access to funds to make necessary company purchases. Those entrepreneurs who work with recurring contractors should look into online factoring. On the other hand, if you work with variable customers or are concerned that factoring is not for you and would like to test this type of financing, be sure to check out the invoice financing option from time to time!
