From 2025, Polish entrepreneurs can settle income tax using the cash method. Revenue and expenses recognized based on actual payment. For whom? Revenue limits? Is it worth switching?
Introduction: A New Development in the Tax System
From January 1, 2025, a new option has appeared in the Polish tax system — cash-basis PIT. This important change allows individuals running business activities more flexible settlement of revenues and expenses.
Previously, entrepreneurs keeping records in PKPiR had to use the accrual method — revenue recognized on invoice date, regardless of when money arrived. The cash method changes this.
What is Cash-Basis PIT?
Cash method is a way of settling income tax where:
Revenue recognized after payment received
Revenue shown on the date money arrives, not on invoice date. If you issue an invoice March 15, but money arrives April 10, you recognize revenue in April.
Expenses recognized after payment made
Expenses recognized when actually paid, not when incurred. If you buy materials March 5 but pay March 20, you recognize the expense in March.
Comparison with Accrual Method
| Aspect | Accrual Method | Cash Method |
|---|---|---|
| Revenue Recognition | On invoice date | On payment date |
| Expense Recognition | On date incurred | On payment date |
| Impact of Receivables | Tax paid even if unpaid | Tax paid after receipt |
| Expense Impact | Deducted even if unpaid | Deducted after payment |
For Whom is Cash-Basis PIT Available?
Cash method not available for everyone. Tax law sets clear criteria.
Conditions (WHO CAN Use)
- Individuals earning income from independently conducted business
- Revenue from previous year not exceeding 1 million zlotys
- Individuals keeping records in PKPiR
- Flat-rate taxpayers can use cash method
- Individuals on linear tax (19%) can choose cash basis
- Taxpayers using IP BOX relief can use cash method
Exclusions (WHO CANNOT Use)
- Companies (partnerships, limited liability companies)
- Individuals keeping accounting books under accounting law
- Taxpayers conducting transactions with related entities
- Taxpayers selling to individuals not conducting business
- Taxpayers conducting sales of fixed and intangible assets
- Taxpayers in transactions with entities in harmful tax competition countries
Revenue Limit — 1 Million Zlotys
Most important condition is the revenue limit, based on previous year.
How is limit calculated?
Limit refers to revenues from previous calendar year. 2024 revenue 950,000 zlotys = can use in 2025. Exceeds 1,000,000 in 2025 = must switch method from 2026.
What counts toward limit?
- Revenue from sales of goods and services
- Rental income if part of main activity
- Subsidies and EU grants
What does NOT count?
- Revenue from sale of fixed assets
- Real estate rental income if reported separately
- Revenue from investments and bank interest
Practical Examples: When Cash-Basis Pays Off?
Example 1: Freelancer with Long Payment Terms
Situation
Programmer completes project June 2025. Issues invoice June 30, client pays November 15. Revenue 50,000 zlotys.
Accrual Method
Revenue in June (invoice date) — tax paid earlier even though money arrives later.
Cash Method
Revenue in November (payment date) — tax paid only after payment received.
Example 2: Services with High Operating Costs
Situation
Marketing agency issues invoice March 1 for 30,000 zlotys, covers campaign costs in February.
Accrual Method
Revenue in March (30,000), expense in February (20,000). Taxable income: 10,000 zlotys in March.
Cash Method
Invoice paid in May, revenue appears in May. Expenses in February/March. Expenses precede revenue timing-wise.
How to Switch to Cash Method
Step 1: Check if you meet conditions
- You are an individual (not a company)
- Revenue from previous year < 1,000,000 zlotys
- You conduct business independently
- You don't conduct transactions with related entities
Step 2: File declaration of method change
No special form needed — indicate method change in annual PIT-38 declaration.
Step 3: Change record-keeping system
Change how you record in PKPiR to reflect cash method. Recognize revenues and expenses from actual payment date, not invoice date.
Step 4: Maintain detailed documentation
Document payment dates. Keep bank statements, correspondence with dates, and payment confirmations.
Limitations and Practical Notes
Restrictions for Consumer Sales
If you sell to individuals not conducting business (e-commerce), cash method does not apply, even with invoices. Only for B2B.
Transactions with Related Entities
If you conduct business with family or related individuals, cash method cannot be used for those transactions. Designed to prevent tax avoidance.
Switching Back to Accrual Method
If preferences change or you exceed the limit, you can return to accrual. Takes effect from new tax year.
FAQ: Frequently Asked Questions
Is cash-basis PIT mandatory?
No. Optional. If accrual works better, continue using it. Choose each year.
Can flat-rate taxpayers use cash-basis?
Yes, flat-rate taxpayers can choose cash method. Revenue recognized on payment date.
What if revenue exceeds 1 million during the year?
If limit exceeded in a year, change method from following year. Continue with cash method for rest of current year.
Does health insurance change with cash-basis?
Health insurance calculated based on taxable income, so cash method may affect amount. Consult accountant for exact figures.
Can I switch mid-year?
Theoretically yes, but practically complicated. Better to change from new tax year to avoid errors.
Piotr Nowak
Age: 45
Education: Master's degree from Warsaw School of Economics, Tax Advisor Certification
Experience: 18 years in income tax and settlements for entrepreneurs
Piotr closely follows tax law changes and helps clients adapt to new regulations. Specializes in tax optimization for self-employed and small business owners. Regularly conducts training on tax system changes.
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