Every entrepreneur who conducts business activity subject to general taxation is obliged to pay withholding tax on a regular basis. It can do this on a monthly or quarterly basis. What does the settlement look like and what is the best form to choose?
Withdrawal of advance payment for income tax takes place in the case of taxing the entrepreneur according to general rules. It is about taxation based on tax thresholds – 18% and 34%, or taxation with a flat tax, i.e. 19% regardless of the income obtained.
Taxpayers who are required to pay withholdings for tax, after the end of the settlement period, must calculate the amount of the advance and remit the appropriate amount to the appropriate tax office. The deadline for making the advance payment is the 20th day in the month after the end of the settlement period.
If the advance payment is made monthly, the deadline expires on the twentieth day of the month after the settlement month. In the case of quarterly settlement, it expires on the twentieth day of the month following the entire quarter, that is:
- April 20 for quarter I
- July 20 for the second quarter
- October 20th for quarter III
- January 20 for the fourth quarter
Which of these forms of billing is better and which one is better to use? You should think about it in order to choose the most favorable solution for you.
The most frequently chosen form of billing is monthly billing. The tax is determined on the basis of the income obtained in a given month. Income is calculated as the difference between the obtained income, less the costs of obtaining it. The obtained amount is the basis for calculating the income tax advance. The values are accrued monthly.
The method of calculating the advance payment is relatively simple. The tax due is calculated on the sum of income received from the beginning of the year. If it is March, then the income for three months is calculated, if in May, then the income for 5 months. The amount obtained is reduced by the value of advances already paid. So, in our example, if the settlement is carried out in March, the advance payment is calculated as the value of the tax on income from three months minus the advance payments made in February and March. If the settlement relates to May, the tax due for May is calculated and it is reduced by the advances made in February, March, April, May.
When deciding to make monthly settlements, the taxpayer does not have to submit any declaration on choosing this form, nor does he have to submit settlement declarations to the tax office. He just pays the down payment due and that’s it. In the annual settlement, all revenues, costs, income and advances will be settled anyway.
The second option for settling tax advances is quarterly. This option can be chosen by people who are just starting their business and taxpayers whose sales revenues, including the amount of VAT due, did not exceed EUR 1,200,000 in the previous tax year. If the taxpayer has obtained higher revenues, he is not entitled to quarterly settlements.
Quarterly statements have the advantage that they are kept for the past three months, and not on an ongoing basis. However, if the business is conducted well and generates relatively high turnover, then after three months, the advance tax may be relatively high, which is not beneficial for the entrepreneur, because he has to pay a large amount at one time. With smaller monthly amounts, this cost is not that much felt.
Choosing the right frequency of billing is primarily a matter of convenience and work organization. Some accounting offices encourage their clients to take a certain form because it makes their work easier. However, it is worth considering for yourself what will be more beneficial in a given, individual situation of a particular company.