What is VAT?
To find a satisfactory answer to the question of whether it’s worth being a VAT payer, it’s worth starting with an explanation of what VAT is in general. Value-added tax – for that is the name it carries – is also called value-added tax. The levy was first introduced in France in 1954, and has been in effect in Poland since 1993. VAT applies to both sellers and buyers and is charged at each stage when value is added.
VAT is added to the net amount at the time of the transaction, which in practice often means that VAT is paid by the purchaser of the goods or recipient of the service. VAT is also settled between businesses. Its amount depends on the net amount. Currently, the most common VAT rate is 23%. The entrepreneur who issues the invoice adds 23% VAT to the net amount. So if he issues an invoice for the net amount of PLN 1,000, he will add PLN 230 VAT to it – so the final cost of the goods (for an individual customer) will be PLN 1230. The entrepreneur then remits the VAT received, amounting to PLN 230, to the Tax Office. So, since the VAT money is only transferred by the businessman, is it worth it to be a VAT payer?
Who must become a VAT payer?
According to Polish regulations, an entrepreneur can choose between being a VAT payer and being exempt from VAT. However, there are certain conditions that must be met in order to choose the second solution. Well, the VAT exemption is only available to companies whose revenue last year did not exceed 200,000. PLN. If this limit is exceeded, the entrepreneur is required to be a VAT payer. It is worth remembering here what the difference is between income and revenue.
Of course, being a VAT payer is mandatory in many other cases. Among other things, when transactions are made for goods such as coins or jewelry, as well as goods subject to excise taxes. Law of March 11, 2014. on Value Added Tax also specifies who is required to be exempt from VAT. This applies, for example, to entrepreneurs who are engaged in the supply of gold to the National Bank of Poland or suppliers of agricultural products derived from their own clearing activities – these entities cannot become VAT payers. For more information on VAT exemptions, see Art. 42 of the Value Added Tax Law.
Why is it important to be a VAT professional?
There are many reasons to be a VAT professional. The most important point remains that paying VAT allows you to deduct it from the goods and services you purchase. So if an entrepreneur purchases equipment for a net price of PLN 1,000, he will be able to deduct PLN 230 of VAT, which will translate into a reduction in the cost of the purchase and a reduction in the final VAT. VAT can also be deducted when a business uses services such as accounting or online factoring. For many entrepreneurs, this is the most important argument in favor of being a VAT payer – and after all, every company makes some kind of purchase, such as a new printer or computer. Any such purchase to a good opportunity to reduce costs.
Many young entrepreneurs fear that being a VAT payer will make them less competitive. In most cases, however, the opposite is true. If you are transacting with another VAT payer, the operation will be profitable for each party, as the customer will be able to deduct VAT for himself. This means that in most cases those who issue a VAT invoice are more competitive in the market. Very often, this is one of the factors that have a decisive influence on whether a potential customer will want to establish a business relationship.
Before deciding whether to become a VAT taxpayer, consider who your company’s customers are. Being a VAT payer is most profitable when VAT payers are also among the contractors. In addition to this, it is worth being a VAT taxpayer when a company makes a lot of investments or incurs high costs, because it is possible to deduct VAT on the costs incurred – even if they only start generating revenue in the future. In addition, being a VAT payer pays off for companies whose business is based on imports, as they can deduct VAT from customs documents.
In conclusion, the decision to become a VAT payer can significantly increase the competitiveness of a given company in the market, as well as allow us to make considerable savings when we make any purchases “for the company”. In practice, being a VAT payer pays off for the vast majority of entrepreneurs.
When is it a good idea to choose a VAT exemption?
However, there are several situations in which it is worth considering VAT exemption. This is especially true for companies whose customers are not VAT payers. Such customers are primarily interested in the final price of the product, and this – thanks to the absence of VAT – can be much lower. This is important because such customers cannot deduct VAT for themselves, so they gain nothing by establishing a relationship with a VAT professional – and can only lose. VAT exemption can also be profitable when the company is run on a very small scale and is accounted for in a simplified form (flat rate). Being VAT-exempt will also cut down on paperwork, which can be important with small-scale operations – especially if you do your accounting yourself.
It is worth remembering, however, that by not being a VAT payer, you lose the ability to deduct certain amounts from tax, and as a result your business purchases will be correspondingly more expensive. So when making the final decision on whether it’s worth it to be a VAT payer, it’s worth recalculating carefully which option will be more cost-effective, taking into account all your planned purchases and how many customers the absence of VAT will be an advantage for.
Is it worth it to be a VAT payer – summary
Experienced entrepreneurs agree that in the vast majority of cases it is worthwhile to be a VAT taxpayer. The VAT exemption is most often chosen by start-ups who feel “safer” not being a VAT payer. Before making a decision, it is important to consider what the monthly costs will be and who will be the customers of our company. Entrepreneurs who are just starting a business are very often afraid of being a VAT payer, because they associate it with a lot of formalities and with complicated settlements. However, if the company operates only on 23% VAT, which is most often the case, this settlement is not at all complicated. So, answering the question of whether it’s worth it to be a VAT taxpayer – in the vast majority of cases it’s worth it, because it can allow you to operate your business better, reduce your tax burden and, in the long run, gain new contractors.
