Cash PIT – For Whom, Why, and Does It Even Make Sense?

Reflections of a Young Accountant 🙃

The long-awaited change in regulations has become law, and entrepreneurs can finally pay taxes using the cash method. It’s worth taking a closer look at the changes that have just come into effect as of January 1, 2025. In this article, we’ll focus on the cash method related to PIT.

So, let’s take a look at how things were until the end of 2024 and how they stand now. To illustrate the topic, we need to analyze revenues, costs, and the moment they arise in the context of tax settlements.

Revenue in Income Tax

Entrepreneurs know that, as a rule, for every issued sales document during the tax year, an advance payment for income tax must be made. The legislator refers here to due amounts, which include not only standard sales invoices but also amounts from the sale of fixed assets, exchange rate differences, or non-cash benefits. Thus, revenue in business activity comprises amounts from the above sources, even if they have not been physically received.

This is the so-called accrual method of determining revenue, which must be reported regardless of when it is received or whether the entrepreneur actually collects it. It’s worth noting that an active VAT taxpayer reports such revenue as a net amount (excluding the VAT amount).

When the Tax Obligation Arises in Practice

Mr. Tomasz runs a wholesale business selling car parts as a sole proprietorship (JDG) and is an active VAT taxpayer. On June 25, 2024, he issued an invoice for 1,230 PLN gross for the sale of brake pads to a car workshop, with a payment deadline of July 10, 2024. For income tax (PIT) purposes, the revenue for an active VAT taxpayer will be the net amount of 1,000 PLN, and it will be included in the tax base for the month of June.

Here, we touch on a key issue in the context of the so-called cash PIT (we will discuss cash PIT itself later, but this information will be helpful in the next stage of our considerations), namely the moment the tax obligation arises for PIT purposes.

Without delving too deeply into the legal provisions, it should be stated that the date of revenue recognition is considered to be:

• the day of delivery of goods
• the day of transfer of property rights
• the day of full or partial performance of a service

However, all of the above applies, but no later than the day the invoice is issued or the payment is made.

To illustrate the above, here’s another example based on Mr. Tomasz’s wholesale business. Mr. Tomasz acquired a new client, a car workshop located 100 km away from his warehouse. He agreed with the new client that the first delivery of parts would be shipped via courier, but only after the full payment for the order was made in advance by the new client. On August 31, 2024, the payment for the ordered parts was received in Mr. Tomasz’s business account. On September 1, Mr. Tomasz shipped the goods to the client via courier. In this case, Mr. Tomasz’s accountant will recognize the revenue for the month of August.

Therefore, the revenue is recognized at the moment the payment is made, as it occurred before the goods were delivered. If Mr. Tomasz had received the order on August 31, but shipped the parts on September 1, along with an invoice dated September 1, and the payment was made, for example, on October 1 (due to a 30-day credit period granted to the client), then the revenue recognition would be set for September – the day the invoice was issued and the goods were delivered (since both dates happened to coincide).

To simplify, revenue is recognized at the moment of: delivery of goods, partial or full performance of a service, issuing an invoice, or receiving payment. As a rule, the moment of recognition depends on which of these events happens first.

Before we move on to describing the differences between the cash PIT and the accrual method of accounting for revenues and costs, we should take a closer look at how expenses for earning income are accounted for under the accrual method.

Accounting for Costs of Earning Income under the Accrual Method

As a reminder, our discussion is focused on individuals running their sole proprietorship (JDG) under the so-called KPiR (book of income and expenses). As a rule, business owners who have chosen taxation under the progressive tax scale or the flat-rate tax method (excluding those on lump-sum taxation) account for the costs of earning income. For these entrepreneurs, the date the expense is incurred is considered the date the invoice or other document supporting the accounting entry is issued, regardless of whether the entrepreneur has paid the invoice or not. This is the most commonly used method for accounting for costs.

So, what is the so-called cash PIT, and who is it designed for?

In short, as described above, current regulations require entrepreneurs and their accountants to recognize revenue at the time of delivery of goods or performance of services. It doesn’t matter if the payment for these goods or services occurs later (for the purposes of our discussion, we are intentionally omitting the issue of interest, compensation, or penalties, as these could have been accounted for on a cash basis prior to January 1, 2025).

As for the costs of earning income, they can be accounted for at the time the invoice is issued, even if payment has not been made. To keep the topic simple, we are excluding the issue of the so-called bad debt relief. Our intent is to present the essence of the so-called cash PIT in the clearest way possible.

And now we get to the heart of the matter. The cash PIT allows entrepreneurs to recognize revenue only when the payment is fully or partially received. Only then does the so-called tax obligation to report the revenue arise. Similarly, the costs of earning income are included in the expenses only after they have been fully or partially paid.

Who can benefit from the cash PIT?

The legislator, in the Act of September 27, 2024, defined the following conditions for entrepreneurs to benefit from the cash PIT:

• The entrepreneur must run their business independently (this does not exclude employing workers).
• Revenue from the business in the previous tax year must not exceed 1 million PLN. This means that if, in 2025, you choose to use the cash PIT and exceed the 1 million PLN revenue threshold during the year, you will need to switch to another method of taxation the following year.
• This applies to entrepreneurs keeping a KPiR (book of income and expenses) or an income ledger. It does not apply to entrepreneurs using full accounting (i.e., those with double-entry bookkeeping).
• To use the cash PIT, you must submit the relevant statement to the tax office by February 20th of the given tax year – for entrepreneurs continuing their business.
• For new entrepreneurs, the statement must be submitted by the 20th of the month following the month of starting the business, and if the business starts in December, the statement should be submitted by the end of the tax year.

The choice of the cash PIT method is valid for one tax year. If you want to abandon it in the following year, you must submit the relevant statement to the tax office again. The cash PIT method generally continues in subsequent years until you either opt out or no longer meet the required conditions (e.g., exceeding the revenue limit), in which case you will no longer be eligible for the cash PIT.

The cash PIT can be used by entrepreneurs:

• Using the tax scale
• Using the flat tax rate
• Using the lump sum tax
• Using the IP BOX

Cash PIT applies only to documented revenues from transactions between businesses. If you sell to consumers who do not run a business, that sale must be settled according to the general rules.

Cash PIT IS NOT mandatory. It is an optional method of accounting—you can choose to use it or not.

Cash PIT will not be available for civil and registered partnerships. It cannot also be applied to income from transactions with related entities or entities from so-called tax havens. However, we won’t go into detail on these topics intentionally. If this applies to you or interests you, you need to refer to the law… or contact us!

The moment of revenue recognition in cash PIT.

In cash PIT, revenue is recognized on the date of payment, but no later than within 2 years or upon the liquidation of the business. What does this mean?

Selected examples of revenue recognition in cash PIT.

Let’s use an example from Mr. Tomasz’s wholesale business and a sale of goods to a new customer with the shipment of car parts via courier, but with a slight modification. The new customer, instead of paying the full amount for the goods, is only required to pay a deposit. Let’s assume that the deposit is received in Mr. Tomasz’s company account on August 31, and on September 1, Mr. Tomasz sends the goods via courier. The goods arrive at the customer’s location on September 2, and on September 5, the customer settles the remaining balance of the invoice issued by Mr. Tomasz.

In the case of accrual accounting, the deposit would not be included in the taxable income for the month of August; instead, the full amount of the paid invoice would be included in the taxable income for September (the decision would depend on the invoice issue date, regardless of whether the remaining payment had arrived). In the cash method, however, the receipt of the deposit in August would mean that this portion would be included in the August income, while the remaining paid amount would be included in the September income.

What if Mr. Tomasz dealt with an unreliable customer and did not receive the remaining payment for the invoice, say, for the next two years? The deposit would still be included in the income for August (just like in the first scenario), but the remaining amount would only be included after two years from the date the invoice was issued, unless Mr. Tomasz managed to collect the payment earlier. In that case, the month of payment would be the month in which the revenue would be recognized. However, if Mr. Tomasz did not collect the debt and decided to close his wholesale business after, for example, 1.5 years from the date of issuing the invoice, he would need to report the income on the date of business liquidation and recognize it as income despite the lack of payment.

Cash PIT and the sale of fixed assets

In this case, we have a “straightforward situation,” meaning the sale of fixed assets and the income derived from it are excluded from the cash method of PIT settlement. That’s it.

So, for example, the sale of an excavator within the framework of a business activity, even if paid in installments, will be fully included in the income of the month in which the sales invoice was issued.

Cash PIT and the settlement of income in different tax years

Example 1:
The entrepreneur chose the cash PIT in 2025, but decided to give it up in 2026. Invoices issued in 2025, but paid only in 2026, will be settled using the cash PIT method. This means the income will be recognized in 2026, in the month the payment is received in the entrepreneur’s account.

Example 2:
The entrepreneur does not use the cash PIT in 2025 but plans to switch to it in 2026. All invoices issued in 2025 (regardless of whether they are paid in 2026 or not) will be settled using the accrual method, meaning they will be included in the income of 2025.

Costs in cash PIT

Every coin has two sides, as the well-known Polish saying goes. If you use the cash PIT method, it applies both to revenue and costs. This means that in the tax year when you are using the cash PIT method, your costs of obtaining revenue are included in the expenses in the year (or month) when they were actually paid by you (but no earlier than the date the cost was incurred) and to the extent that they were actually paid (e.g., in installments, advances, etc.).

Example:
Mr. Tomasz ordered parts for resale directly from the manufacturer in December 2026. In the same month, he received the goods and the purchase invoice. However, he paid for the invoice only in March 2027. If Mr. Tomasz uses the cash PIT method, this invoice will reduce his revenue only in March 2027.

Note! An exception applies to depreciation write-offs, which will be accounted for as costs according to the existing rules.

Summary

1. The regulations regarding the so-called cash PIT came into effect on January 1, 2025.
2. Cash PIT can be used by a narrower group of taxpayers compared to cash VAT (yes, we also have cash VAT, but that’s a topic for another time).
3. Cash PIT is dedicated to entrepreneurs running sole proprietorships. As the name suggests, it’s a “cash PIT,” not a “cash CIT,” so it does not apply to business entities under commercial law that use full accounting, i.e., bookkeeping.
4. The use of cash PIT applies only to B2B revenue settlements, meaning transactions between businesses.
5. If you, dear entrepreneur, use cash PIT, it does not affect how your contractor settles their taxes. They may use the accrual method, meaning your invoice will be your revenue when you receive payment, but for your contractor, it will be an expense in the month they receive the invoice (simplifying), even if they pay for it after 3 months.
6. Unfortunately, cash PIT is associated with more work for accountants, who are required to record and monitor not only accounting documents but also pay attention to the actual cash flow resulting from them. This, inevitably, will translate into slightly higher accounting service costs.

Do you want to check if cash PIT makes sense for your case? Schedule a consultation and talk to our experts – we’ll definitely find the right solution for you!