4 practical questions on determining the income of single tax payers

Автор: admin_dev

Дата оновлення: 14 January 2013

Answers to 4 most frequently asked questions regarding the calculation of income of single tax payers …

4 most frequently asked questions regarding single tax payers

1. Is the income amount of a single-tax payer (legal entity and individual) reduced by the amount of the Unified Social Contribution (USC)?

For individual single-tax payers the USC is set at 34.7% of the contribution base (part 11 of Article 8 of the Law on USC). At the same time, such entrepreneurs determine the contribution base for themselves, but not more than the maximum base for calculating the unified contribution and not less than the base for calculating the minimum insurance contribution (subparagraph 4 paragraph 1 Article 7 of the Law on USC). The minimum and maximum sizes of the USC are tied to the minimum wage and the subsistence minimum for employable persons (respectively), the amounts of which are set by the laws on the state budget (see above). According to the norms of the Law on USC, are exempt from paying the USC “for themselves” (paragraph 4 Article 4 of the Law on USC) 1:
1) individual single-tax payers who are pensioners by age;
2) individual single-tax payers who are persons with disabilities and receive a pension or social assistance.

Such persons may pay the USC on a voluntary basis.

As for the payment of the USC from the payroll fund for hired employees, a single-tax payer entrepreneur and a single-tax payer legal entity are no different from other employers. Like everyone else, single-tax payers pay payroll-related contributions at the rates established depending on the class of occupational risk of production to which payers are assigned, taking into account the types of their economic activity.

The reporting period for calculating and paying the USC by employers is the calendar month. Employers are obliged to pay the USC at the time of each salary payment, on the amount on which this contribution is charged (both from advance payments and when fully settling with the employee for the month). But no later than the 20th day of the month following the basic reporting period.

According to paragraph 292.10 of the Tax Code of Ukraine (TCU), amounts of taxes and fees withheld (accrued) by a single-tax payer when performing the functions of a tax agent, as well as amounts of the Unified Social Contribution charged by a single-tax payer in accordance with the law, are not considered income.

Consequently, USC amounts are not income for either individuals or legal entities who are single-tax payers. However, the phrase “are not income” does not at all mean that such amounts should “reduce the income” of the single-tax payer. Therefore, the income of a single-tax payer (both an individual and a legal entity) is not reduced by the amount of the accrued Unified Social Contribution for compulsory state social insurance.

2. How should a single-tax legal entity reflect income for goods shipped (services rendered) for which payment was received while on the general tax system?

Imagine a situation where in Q4 2012 an enterprise was on the general taxation system and received prepayment for products that were shipped in Q1 2013. From Q1 2013 the enterprise switched to paying the single tax. How should the funds received in Q4 2012 be taxed?

First of all, recall that for determining the object of taxation for profit tax, amounts received as prepayments and advances received for payment of goods, works performed, services rendered are not taken into account (subparagraph 136.1.1 of the TCU). Thus, advances received on the general taxation system were not subject to profit tax.

When determining the tax base while on the single tax, received incomes are taken into account, including funds received into the account or cash register (paragraph 292.1 of the TCU), however taking into account paragraph 292.3 of the TCU. According to paragraph 292.3 of the TCU, the income of a single-tax payer of the fourth and sixth groups for the reporting period includes the cost of goods (works, services) sold during the reporting period for which prepayment (advance) was received in the period of paying other taxes and fees defined by this Code.

Thus, based on the understanding of the TCU norms, income should be recognized on the date of shipment of each batch of previously paid inventories. Recognition of income will be gradual as inventories are shipped. Tax authorities interpret this norm differently (Note 1). Therefore, it would not be superfluous to obtain an individual tax consultation in case such operations occur.

Example

Enterprise “Alpha”, while on the general taxation system, in Q4 2012 received an advance for 100 units of goods at a price of 1200 per unit (including VAT) for a total of 120,000 (including VAT). However, no shipment occurred in Q4 2012. In Q1 2013 Enterprise “Alpha” is on the single tax in group 4 at a rate of 3% (with VAT registration). In the first quarter 50 units of previously paid products were shipped for the amount of 60,000 (including VAT). In this case, guided by the TCU norms, one should include in the first quarter’s income for single tax purposes the amount of 50,000 (excluding VAT).

Unpleasant tax consequences when changing the taxation system can be avoided by preparing in advance for the transition to the simplified system and taking care to minimize the amount of received prepayments at the date of transition: ship prepaid goods before the change of the taxation system or accept prepayments after that event.

However, one can consciously leave transitional operations after analyzing possible tax consequences and the “price of the matter.” For example, if the volume of operations is quite large but the amount of profit is small, then it is better to carry out such operations on the general taxation system. If the volume and profitability of operations are such that 3–5% of income is less than 21% of profit (the rate effective in 2012; in 2013 the profit tax rate is 19%), then it is better to carry out inventory sales operations on the single tax.

3. Should a physical person who is a single-tax payer be subject to single tax on interest received from a deposit?

Throughout 2012 the question repeatedly arose regarding the taxation under the single tax of interest received on funds in a deposit account opened in the name of a physical person. The definition of income is given in paragraph 292.1 of the TCU. In particular, passive incomes in the form of interest, dividends, royalties are not included in the income of an individual single-tax payer. So, with a direct norm we can confidently say that the amount of interest received will not be included in the income of an individual single-tax payer for the purposes of single tax.

By the way, note that such amounts should also not be subject to personal income tax (PIT). Considering subparagraphs 164.2.8, 165.1.2 and paragraphs 167.2, 170.4 and paragraph 1 of Section XIX of the TCU: incomes in the form of interest on current or deposit bank accounts are not subject to PIT until January 1, 2015.

4. Single-tax payer — individual and funds mistakenly credited to the account.

Funds mistakenly credited to an account can be a problem from a tax perspective. Let’s find out whether the amount mistakenly received into an entrepreneur’s account should be subject to the single tax. Application of the simplified taxation system for individuals — entrepreneurs is regulated in particular by Article 291 of the TCU, which provides for groups 1–3 and 5.

Group 1 (subparagraph 1 paragraph 291.4 of the TCU) involves exclusively retail sale of goods at market trading places and/or provision of household services to the population, so it is unlikely that many such entrepreneurs use cashless settlements in their activities.

Therefore, consider simplified-system entrepreneurs who chose groups 2, 3 and 5 of taxpayers. According to Article 1 of Law No. 2346, a mistaken transfer is the movement of a certain amount of funds due to which, through the fault of the bank or another transfer subject, it is debited from the account of the improper payer and/or credited to the account of the improper recipient or issued to them in cash.

According to paragraph 2.35 of Instruction No. 22, funds mistakenly credited to the account of an improper recipient must be returned by them within the timeframes established by the legislation of Ukraine, for violation of which the improper recipient bears responsibility in accordance with the legislation of Ukraine. If the improper recipient does not return the funds within the specified period for any reason, they are returned through the courts. (Note 3)

As for taxation of mistakenly credited funds under the single tax, note the following. The definition of an individual entrepreneur single-tax payer’s income is given in subparagraph 1 paragraph 292.1 of the TCU.

Amounts of funds (advance, prepayment) that are returned by a single-tax payer to the buyer of goods (works, services) and such return occurs as a result of the return of goods, termination of the contract or by a written application for refund are not included in the income of an individual single-tax payer (paragraph 292.11 of the TCU).

Thus, the presence of a written application for the return of mistakenly credited funds is mandatory for non-taxation of the received amounts under the single tax. Consequently, the amount of funds mistakenly transferred to the entrepreneur’s settlement account and returned in particular by written application for a refund in the reporting quarter is not included in the income of the individual entrepreneur — single-tax payer. At the same time, such an individual entrepreneur — single-tax payer may continue to remain in the chosen group.

If the mistakenly transferred funds are not returned in the reporting quarter, this amount should be included in the calculation of the maximum income volume, as well as in the tax base for the single tax. Later, in the period of returning the funds, using the norm of subparagraph 1 paragraph 292.1 of the TCU, the income amount should be reduced by the amount of the returned funds, but we recommend obtaining an additional tax consultation on this matter.