24 May 2018

Split Payment Mechanism

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The Act of 15 December 2017 Amending the Act on Goods and Services Tax and Some Other Acts (Journal of Laws of 2018, item 62) (“Amendment”), introduces the Split Payment Mechanism (SPM) into the Polish legal system.

The new law enters into force on 1 July 2018. At that time, each entrepreneur will be able to pay a VAT invoice received from a vendor using the SPM. The use of this method is to be voluntary and the decision to choose this mechanism will be made by the entity making the payment.

If the payer wants to use the SPM, they will make a single payment in the online banking system with the use of a new money transfer sheet including, among other things, the following details: invoice number, gross amount, VAT amount and recipient’s NIP (Tax Identification Number). In the new payment scheme, the above information will have to be provided in accordance with a specified structure.

After receiving a transfer order under the SPM scheme, banking systems will automatically split the payment for the purchased goods or services by debiting the payer’s two separate accounts:

  • the dedicated VAT account – with the VAT amount (not more than up to outstanding balance), which is transferred to the settlement account,
  • the settlement account – with the gross amount.

Such a split payment will be transferred to the counterparty’s:

  • settlement account – in respect of the net amount specified by the payer,
  • VAT account – in respect of the VAT amount specified by the payer (this amount goes through the settlement account).

The funds transferred to the VAT account are to be used mainly for paying VAT to the taxpayer’s counterparties or the Tax Office. The ways how funds on the VAT account can be used will be limited. In order to release the funds accumulated on the VAT account for other purposes, the taxpayer will have to submit a separate request to the Tax Office. Thanks to that – in line with the legislator’s assumption – the funds constituting VAT shall, in most cases, remain on entrepreneurs’ VAT accounts, which is to prevent VAT fraud. To persuade taxpayers to use the new payment method, the legislator provided various incentives for entrepreneurs.

We would like to draw your attention to the fact that the amended law obliges banks, including HSBC Bank Polska S.A., to open one VAT account for the currently kept account or accounts, which will enable the use of the SPM. If you would like to analyse the feasibility of the new payment method and the benefits it can bring you, we suggest contacting your tax advisor.

General information regarding the Split Payment Mechanism (SPM)

  1. What is the SPM?
  2. The Split Payment Mechanism enters into force on 1 July 2018. It was introduced by the Act of 15 December 2017 Amending the Act on Goods and Services Tax and Some Other Acts (Journal of Laws of 2018, item 62) (“Amendment”). Pursuant to this act, every bank will open one VAT account in PLN for all settlement accounts of a given customer maintained in PLN. To open more VAT accounts for settlement accounts, a separate instruction will have to be issued. However, after 1 July 2018, VAT accounts will be opened compulsorily for each customer entering into a Bank Account Agreement for maintaining a PLN account.

  3. How does the SPM work?
  4. In the Split Payment Mechanism, the Bank – at the request of the payer – automatically splits the payment for the purchased goods or services into two separate accounts: the settlement account and a dedicated VAT account. The payer will make a single payment with the use of a new money transfer sheet including the following details: invoice number, gross amount, VAT amount and recipient’s NIP (Tax Identification Number). Funds received in the SPM will be first booked to the settlement account as the total amount and then the VAT amount will be booked to the VAT account.

  5. What are the main assumptions of the SPM?
    • Banks and Cooperative Savings and Credit Unions will be obliged to open and maintain VAT accounts.
    • The use of the Split Payment Mechanism (SPM) will be voluntary – however, the Ministry of Finance provides a system of incentives for entrepreneurs who use the SPM.
    • The SPM will apply to payments in PLN for transactions documented with a VAT invoice on which the tax amount is shown.
    • In the Split Payment Mechanism, the Bank automatically splits the payment for the purchased goods or services into two separate accounts of the supplier: the settlement account and a dedicated VAT account. The payer will make a single payment with the use of a new money transfer sheet including the following details: invoice number, gross amount, VAT amount and recipient’s NIP (Tax Identification Number).
    • Funds held on the VAT account may be used only for limited purposes
  6. What are the predicted results of using the SPM?
  7.  
  8. When does the SPM enter into force?
  9. The Split Payment Mechanism enters into force on 1 July 2018.

SPM: are you ready?

  1. Does the SPM apply to retail customers or entrepreneurs?
  2. The Split Payment Mechanism applies only to entrepreneurs. The mechanism will apply to payments in PLN for transactions documented with a VAT invoice on which the tax amount is shown.

  3. Will the use of the SPM be obligatory or voluntary for all entities? Will the entrepreneur be required to execute all transfers in the SPM scheme?
  4. Officially, the Split Payment Mechanism is voluntary, i.e. it is up to the payer whether to make the payment in the SPM scheme or otherwise, and the invoice issuer has no influence on it; they even cannot predict how the payment will be made. However, the legislator has provided a number of incentives to encourage the use of the SPM. In addition, as the ways how funds accumulated on the VAT account can be used will be limited, recipients of payments in the SPM scheme may be encouraged to use this mechanism.

  5. What are the reasons for using the SPM when paying invoices?
  6. Every entrepreneur whose counterparties will start to use the SPM should carefully analyse the potential impact of this mechanism on the current operations of their company. Therefore, we suggest you contact your tax advisor.

  7. Does the SPM apply to all payments?
  8. The Split Payment Mechanism will apply to payments in PLN for transactions documented with a VAT invoice on which the tax amount is shown. The SPM does not apply to payments denominated in a foreign currency, payments to the Social Security System (ZUS), salaries, payments to individual customers – they will be executed under existing conditions.

What should I do?

  1. Which business areas will be affected by the SPM?
  2. Liquidity – it may happen that the VAT amount blocked on the VAT account limits the customer’s ability to settle current trade payables.

    Financial and accounting systems – payments made using the SPM will require more transaction data to be provided: gross amount, VAT amount, recipient’s NIP (Tax Identification Number) and invoice number. It will affect the format of domestic payment files: Elixir, SORBNET, MT101. It is also worth remembering that the following rule will apply: ONE PAYMENT = ONE INVOICE, which means that in one payment no more than one invoice should be paid.

  3. Does HSBC Bank Polska S.A. inform the Tax Office about opening and the number of the VAT account it maintains for the customer under the SPM?
  4. The Bank will not inform the Tax Office about opening and the number of the VAT account. We suggest that you contact your tax advisor to verify which disclosure obligations regarding the VAT account and connected with the SPM should you meet towards the Tax Office.

  5. How will the Bank automatically split the amount in the net amount and the VAT amount in the SPM?
  6.  
  7. What if the entrepreneur wants to pay using the SPM and there are not enough funds on the VAT account?
  8. The invoice payer that chooses the SPM will order a single payment from the settlement account with the use of a new money transfer sheet including the following details: invoice number, gross amount, VAT amount and recipient’s NIP (Tax Identification Number). The Bank will check the balance of available funds on the VAT account for the tax amount indicated in the SPM, and then:

    • if funds on the VAT account are sufficient to cover the tax amount, the Bank will book the VAT amount from the VAT account into the settlement account and then execute the transfer in the SPM from the settlement account,
    • if funds on the VAT account are sufficient to cover partially the tax amount, the Bank will book funds from the VAT account up to the balance amount into the settlement account and then execute the transfer in the SPM from the settlement account,
    • if there are no funds in the VAT account to cover the tax amount, the Bank will execute a transfer in the SPM from the settlement account.

    A transfer ordered in the SPM cannot be executed partially. If, on the VAT account and the settlement account from which the transfer was ordered, there are not enough funds to make the transfer in full, the Bank will not execute the transfer, and no funds will be booked from the VAT account into the settlement account.

  9. Will the technical specification for PLI, PLD, XML, MT103, MT101 formats change?
  10. Yes, the new technical specification will be available for downloading on the Bank’s website: www.hsbc.pl under the “Split Payment Mechanism” tab.

  11. Invoices are to contain the VAT account number or both account numbers? Which account is to be specified in the transfer order in the SPM and VAT payment to the Tax Office?
  12. Numbers of settlement accounts remain unchanged and in settlements with counterparties, as it has been the case so far, only the settlement account number is to be provided. Also in the online banking, as it has been the case so far, the settlement account will remain the only debit account in the SPM. This is also the case with regard to VAT transfers to the Tax Office.

  13. In which cases will it be possible to use funds accumulated on the VAT account?
  14. Funds accumulated on the VAT account will be allowed to be used mainly in the following cases:

    • VAT payments to the Tax Office,
    • payments for invoices in the SPM,
    • payments for correctiion invoices,
    • transfers of funds between customer’s own VAT accounts within the same bank.

    Thus, it will not be possible to use funds accumulated on the VAT account for payments for tax obligations other than VAT.

  15. What payments to the VAT account will be possible?
  16. In general, the following payments to the VAT account, in the amount of VAT, will be accepted:

    • payments for an issued invoice (in the SPM),
    • receivables resulting from an issued correction invoice (in the SPM),
    • returns of VAT from the Tax Office,
    • transfers of funds between customer’s own VAT accounts within the same bank,
    • transfers in the SPM rejected by the beneficiary’s bank.
  17. How will be a return of funds booked if the original transfer was ordered using only a part of funds from the VAT account (e.g. when there were not enough funds on the VAT account)?
  18. A return of an issued payment message executed in the SPM is made based on the instruction received (definition of the VAT amount in the transaction description), thus, it does not result from the original accounting method used for initiating the original order. A payment connected with a return of a payment message (including both transfers and direct debits) is treated as a new payment message. Therefore, the funds will be booked based on the new payment message and not on the original payment message. In practice, if a transfer in the amount of PLN 123 was ordered (where PLN 12 was debited from the VAT account and the rest from the settlement account), in case of return of such a transfer, PLN 23 will be transferred to the VAT account and PLN 100 to the settlement account.

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