It is in the best interest of many entrepreneurs to generate costs. The goods, materials and services purchased help the company grow, and the costs incurred for them reduce the amount of income tax to be paid. What’s more, if you are an active VAT payer, the goods and services you purchase for the company (and the tax you pay, by the way) will also affect the final amount to be paid.
What are deductible expenses?
Deductible expenses are those that an entrepreneur incurs for the purposes of his business. And it is this element – the link to the business – that is most relevant.
For an entrepreneur, the desirable situation is one in which he generates high costs – because he can deduct them from his income, thus reducing the income on which he will then pay PIT. The formula is simple:
Taxpayers on a flat tax scale usually pay 17% on their income (until they exceed the threshold, after which any income is taxed at 32%), while those on a flat tax pay 19% on the income they earn regardless of the amount.
However, it is worth knowing that corporate expenses can be audited by the tax office – its employees will assess whether the costs claimed by the entrepreneur as deductible expenses are actually related to the type of business. In case of doubt, officials may question the legitimacy of including certain expenses in the PPC and therefore impose unpaid tax, fines, restrictions or even imprisonment. It all depends on the scale of misconduct.
EXAMPLE
A restaurant owner’s tax-deductible expense may be the clothes he or she wants to equip his or her staff – waiters and waitresses, people working in the kitchen or at the reception desk. However, if the garments are not uniform, do not indicate a connection to the restaurant in any way (for example, there is no logo or name of the restaurant anywhere on them), officials may challenge their inclusion in deductible expenses. In such an arrangement, the entrepreneur will have to prove that the clothes were actually used on his premises and constituted equipment for his employees, and were not purchased for private use – for his family, for example.
At a time when almost every restaurant maintains social media accounts, proving the legitimacy of purchasing clothes for employees should be a mere formality. It is enough to present photographs in which the restaurant staff performs their duties while wearing the purchased uniforms.
The main difficulty in the context of qualifying expenses as tax-deductible expenses is the absence of any catalog that lists items, goods and services that can be included in the tax-deductible expenses. Hence, many entrepreneurs are running headlong into the question: what can be bought for the company, and what absolutely not? So let’s try to answer them for ourselves.
Deductible costs vs. VAT
Employers who are active VAT taxpayers often ask what VAT can be deducted on? The answer is – fortunately – simple: every expense that is deductible reduces not only the PIT to be paid, but also the VAT. This is because when you buy a good or service, you simultaneously pay a value added tax “sewn” into the purchase price.
You can find the regulations for this situation in Art. 86 par. 1 of the VAT Act.
Among other things, VAT is not deductible. financial services, catering, accommodation, and, of course, services that did not take place.
If a business uses one of the listed services – for example, catering – it cannot deduct VAT, but counts the entire amount paid (gross) as a tax-deductible expense.
Check also – Return of goods purchased for a company online.
What won’t count as a deductible expense?
While the Personal Income Tax Law does not include a catalog of goods and services that can qualify as an expense, it does list those that certainly should not be treated as such. These include:
- Depreciation allowances for passenger cars, above the value of PLN 150,000,
- expenses for auto-casco insurance of passenger cars in excess of car insurance with a value of PLN 150,000,
- costs of repayment of loans, credits and other liabilities,
- Interest costs incurred as a result of late payment of budget and tax obligations,
- representation costs.
What can be included in business expenses?
Of course, we will not create a closed list here, where you will find goods and services that can be deductible for your business without raising anyone’s doubts. However, we have tried to prepare such examples of throwing business purchases into costs that will be applicable to most enterprises.
However, before you decide to book any of the examples given as a deductible expense, ask yourself whether a cause-and-effect relationship can be established without doubt between the purchase of the item in question and an increase in revenue in your business.
What changes did 2023 bring?
The law is constantly evolving, and changes have not bypassed the issue of accounting for deductible expenses. Beginning in 2023, businesses can deduct costs incurred in increasing professional competence. So they will deduct expenses for training and courses – including online ones.
From 2024, there are also new options for accounting for the operating expenses of a company car. Now business people can choose flat-rate billing or billing based on real, documented expenses.
Also this year, the possibility of recognizing expenses for commuting to work or to the place of business has been introduced.
Of course, we will not create a closed list here, where you will find goods and services that can be deductible for your business without raising anyone’s doubts. However, we have tried to prepare such examples of throwing business purchases into costs that will be applicable to most enterprises.
However, before you decide to book any of the examples given as a deductible expense, ask yourself whether a cause-and-effect relationship can be established without doubt between the purchase of the item in question and an increase in revenue in your business.
Tax-deductible costs associated with the company’s headquarters
The first thing that you can easily put into your business expenses is the rent and other fees directly related to the premises you rent or own. Offices, warehouses, production halls – all these buildings and premises generate costs related to heating, electricity, maintenance and upkeep.
Important!
Are you renting a room that is part of a building or, for example, organizing an office in one of the rooms of your own apartment or house? This means that you can only count as a deductible expense the portion of the cost that results from actual use in your home office. However, you don’t have to install allocators, which will help you measure utility usage in your office. For simplicity’s sake, the area of an office room is used as a reference point in this case.
Renovating and decorating the office
Each office must be prepared so that business-related activities can be carried out in it without interruption. The cost of painting, installation of electrical systems or lighting – all of these will not raise questions with officials, as they are necessary for the business.
The same is true of office furnishings and equipment. The purchase of furniture such as office desks and armchairs, conference room tables and office kitchen equipment are also expenses that are commonly recognized as tax-deductible for companies, as long as those companies have employees. In case you are running your home business yourself, it is better not to try to throw in the cost of renovating your home kitchen or buying six chairs. However, you can – provided you receive clients in a home office or study – purchase a chair for visitors, and even equip a waiting room if you actually have one.
If you are replacing doors or windows in an office space, you can also include them in the BUI.
Moreover, decorative items – potted plants, posters, paintings and others – can be deductible. However, it is worth remembering that they must not carry a representative character – in practice, it boils down to the fact that they must not represent a significant value. And what significant value is that? No regulations specify this. However, it is safe to assume that a poster with a frame priced at 300 zlotys will not raise any doubts among officials, while an original painting painted on canvas purchased for 15,000 zlotys will certainly bring the company under the control of the tax office.
Internet and telephone
Doing business in 2022 without internet access and without a cell phone is an unprecedented rarity. If you’re not in this group, you can include not only the phone handset in your business expenses, but also your monthly subscription bills – of course, only if you pay a separate subscription for your business phone. If you want to include in the BUI the only subscription you have, officials can easily question such a cost – it will be difficult to convince them that privately you do not use the phone at all.
The same is true of the Internet – if you are setting up a home office, counting the subscription as a business expense is not a good idea. However, if you have a separate mobile internet that you use for business trips, as much as possible you can treat it as a deductible expense.
Computer and other devices
A company laptop will come in handy for keeping records, contacting customers by email, adding products to an online store or running online promotions. Therefore, there is nothing to prevent the purchase of a computer from being recognized as a deductible expense. There is a certain amount of freedom here – you can buy both a cheap Ideapad with an Intel Celeron processor for £2,000 and a MacBook Pro with an M2 chipset for £15,000. In both cases, it’s still a computer, used for work. A possible inspection should have no trouble with the fact that the company has higher-end equipment, enabling it to complete tasks faster and more efficiently.
Also, peripherals – printers, copiers, scanners, keyboards, mice, monitors and even multimedia projectors or televisions – can be charged to the company. In the latter two cases, however, it is worth thinking about how they will be used. If we put a 70-inch TV in a small home office to watch movies, officials will certainly want to take a closer look at such spending.
We can also include in deductible expenses all equipment that is directly related to the nature of the business. A company dedicated to recording weddings and other special events will easily justify the purchase of cameras, camcorders, all kinds of lights, tripods, as well as additional software or storage media. An artisanal ice cream company, on the other hand, will be able to count as an expense the purchase or lease of refrigerators, ice cream machines, disinfectants, etc. Again – it all depends on the type of business, or more precisely – on the registered PAC codes and their actual implementation.
Company car
Not only transport companies can benefit from including the costs associated with the purchase, leasing or depreciation of a car as a BUI, and thus reduce the amount of income tax to be paid. Any businessman may need a car if only to commute to clients, business meetings or the office. You can also include purchased fuel in your expenses.
It is worth mentioning, however, that as of 2022, car leasing in sole proprietorships has lost its appeal. Lease-financed cars will be harder to sell. Prior to 2022, after buying back a car, an entrepreneur only had to wait six months to sell it without paying income tax – now the period has been extended to six years. This means that if you plan to sell your car in 2023 for the amount of PLN 70,000, you will pay at least PLN 11,900 in tax on this amount – as the money received from the sale of the car will count as income for your company.
These are, of course, not all examples, but those that are most often reported by entrepreneurs and that usually do not raise questions and do not increase the risk of inspections by officials. Remember, however, that each interpretation is individual, so it is advisable to include in deductible expenses only those that are directly related to your business. Thus, even if an inspection occurs, you do not have to fear unpleasant repercussions.
Car operation and deductible expenses
However, the operation of the car itself involves costs – repairs, replacement of parts or fueling. We can include any of these things in our deductible expenses. However, we must keep in mind that:
- We will deduct 100% of the costs only if we use the car exclusively for business purposes and are able to confirm this by keeping records of the kilometers driven.
- 75% of the costs incurred will be included in the BUI if we use the car, which is a fixed asset of the company
- Only 20% of the costs will be included as income generation if you use a privately owned car for business purposes.
These are, of course, not all examples, but those that are most often reported by entrepreneurs and that usually do not raise questions and do not increase the risk of inspections by officials. Remember, however, that each interpretation is individual, so it is advisable to include in deductible expenses only those that are directly related to your business. Thus, even if an inspection occurs, you do not have to fear unpleasant repercussions.
