01 November 2019

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), introduced the Split Payment Mechanism (SPM) into the Act of 11 March 2004 on Goods and Services Tax (consolidated text Journal of Laws of 2018, item 2174, hereinafter the “VAT Act”).

The Act of 9 August 2019 amending the Act on Goods and Services Tax and Some Other Acts (Journal of Laws of 2019, item 1751, hereinafter the "Act"), in its turn, expanded the scope of SPM application, and in some areas enforces its obligatory use.

The new law enters into force on 1 November 2019. At that time, each payer will be obliged to check if the payment for a VAT invoice received from a supplier needs to be executed in the SPM. The use of this method will be mandatory in case of the payment for the goods or services, mentioned in the new Annex 15, given that total amount payable of the invoice equals 15 thousand zloty or more.

Should the payer use the SPM, they will make a single payment in the online banking system with the use of SPM money transfer while providing i.e. the following details: invoice number, gross amount, VAT amount and recipient’s NIP (Tax Identification Number).

Another change in the amended VAT Act is the option to make a bulk payment for the invoices issued in a given period by one contractor (aggregated payment). That period cannot be shorter than one day nor longer than one month. In this case, while defining the SPM payment, instead of the invoice number payer has to provide the period in which the invoices were issued.

After receiving a wire transfer 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 amendment to the VAT Act also widens the scope of options to utilise the VAT account’s balance. Up until now, it was only allowed to pay the VAT dues to the taxpayer's counterparties and to the Tax Office. However, since 1 November 2019, taxpayers will be able to use the VAT account’s balance to pay not only VAT, but also CIT, PIT, excise duties, customs duties and ZUS contributions.

To transfer the funds from the VAT account to the settlement account, the currently applicable rule remains unchanged – the taxpayer is required to submit relevant application to the Tax Office.

We would like to draw your attention also to the fact that for the taxpayers who supply goods or services mentioned in the Annex 15 are obliged to open a bank account in Polish Zloty. This however does not change the rule that all the banks, including HSBC France (Spółka Akcyjna) Oddział w Polsce, 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 impact of amended legislation on your business, we suggest you contact your tax advisor.

General information regarding the Split Payment Mechanism (SPM)

  1. What is the SPM?
  2. The Split Payment Mechanism entered 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). Pursuant to this act, every bank opens one VAT account in PLN for all settlement accounts of a given customer maintained in PLN. To have more than one VAT account opened, customer needs to raise relevant request. However, the Act of 9 August 2019 amending the Act on tax on goods and services and certain other acts (Journal of Laws of 2019. Pos. 1751) extends the scope of the SPM, and in some areas it provides for mandatory use.

  3. How does the SPM work?
  4. In the Split Payment Mechanism, the Bank – upon the payer’s request – automatically splits the payment for the purchased goods or services into two separate accounts: the settlement account and dedicated VAT account. The payer makes a single payment with the use of a SPM scheme including the following details: invoice number or the period (from 1 November 2019, there is an option to make bulk payments for multiple invoices to one beneficiary by specifying the period in which the invoices were issued), gross amount, VAT amount and recipient’s NIP (Tax Identification Number). Funds received in the SPM are first booked to the settlement account as the total amount and then the VAT amount is booked to the VAT account.

  5. What are the main assumptions of the SPM?
    • Banks and Cooperative Savings and Credit Unions are obliged to open and maintain VAT accounts.
    • The use of the Split Payment Mechanism (SPM) is mandatory under particular circumstances; although for the cases, where its use is voluntary, the VAT Act provides a system of incentives for taxpayers, 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. While the payer makes a single payment with the use of a new SPM type transfer, including the following details: invoice number or the period, gross amount, VAT amount and recipient’s NIP (Tax Identification Number).
    • The VAT account’s balance may be utilised for limited purposes only.

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. Is the use of the SPM obligatory or voluntary for all entities? Are the taxpayers required to execute all transfers in the SPM scheme?
  4. Formally, the Split Payment Mechanism is mandatory for a specified list of goods and services listed in Annex 15 to the VAT Act, effective from 1 November 2019 and is voluntary for the supply of goods or services outside the list. The invoice issuer, who should be paid under SPM, is required to mark it with an annotation, while the payer - regardless of the invoice markings - must decide for himself whether it should be paid using SPM. In addition, the payer always has the option to use SPM for the purchase of goods or services not covered by the statutory obligation, and the invoice issuer has no power over this and cannot anticipate in which form the payment will be executed. The legislator provided a number of incentives in this respect, which are to encourage taxpayers to use this mechanism.

  5. What are the reasons for using the SPM when paying invoices?
  6. Given that use of the mechanism is mandatory for the particular cases, listed above, each taxpayer 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 is mandatory for the payments for purchased goods or services listed in new Annex 15 to the VAT Act, where the total amount of the invoice issued is equal or exceed PLN 15,000. Such obligation also applies to settlements for the abovementioned goods or services denominated in a foreign currency. In this situation, SPM, and therefore a PLN transfer, should be applied to the amount of VAT. In cases of deliveries of goods or services other than those indicated above, the application of SPM is voluntary.

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 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 who uses the SPM order a single payment from the Priority account with the use of a SPM transfer including the following details: invoice number or the period, gross amount, VAT amount and recipient’s NIP (Tax Identification Number). The Bank will check the balance of the VAT account against the VAT 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. The technical specifications have been updated for the SPM purposes in 2018 and are available for downloading on the Bank’s website: www.hsbc.pl under the “Split Payment Mechanism” tab.

  11. Should VAT account’s number or both accounts be specified on the invoices? Which account should be specified in the transfer order under the SPM for the VAT or ZUS 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 under the SPM. This also applies to the payment to the ZUS, which should be ordered as a standard transfer. Transfers to the Tax Office due for VAT, CIT, PIT, excise duties or customs duties with the use of VAT account’s balance should be ordered as usual, using the format for tax transfers.

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

    • VAT, CIT, PIT tax payments to the Tax Office
    • payment of excise duties, customs duties
    • payments to the ZUS
    • payments for invoices in the SPM
    • payments for correction invoices
    • transfers of funds between customer’s own VAT accounts within the same bank
  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:

    • receivables for the invoice issued (in the SPM)
    • receivables resulting from a correcting invoice issued (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 a return of funds is 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 of 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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