SPLIT PAYMENT; HOW DOES IT WORK?

In the so-called 2015 Stability Law, the split payment mechanism was introduced for economic relations with the public administration.

WHAT IS SPLIT PAYMENT

With the new split payment mechanism, the obligations to pay the tax are moved, in relations with public bodies expressly indicated in art. 17-ter, DPR 633/1972, by the transferor / lender to the public body itself. The public administration office, instead of paying the VAT to the supplier, will pay it directly into the tax coffers, according to the procedures and terms set by the decree of the economy minister to be issued soon. Basically it acts as a bit of a withholding agent for VAT. Something never seen before, so it is worth investigating the accounting aspects and the implications from the point of view of VAT management in companies.

Transactions for which the public body is liable for tax, as it is subject to the reverse charge obligations, and the fees for services subject to withholding tax as income tax are excluded from this mechanism, such as example all professionals.

The entry into force of the split payment is practically immediate, as it applies to transactions invoiced starting from January 1, 2015 for which the tax is due after the same date. This obviously created a bit of difficulty for everyone in managing the problem both at the accounting level and at the technical level. Not to mention the heavy financial implications for companies in VAT credit, which will have a further increase in their credit towards the State.

THE ACCOUNTING ASPECTS

From 1 January, therefore, companies will have to manage operations with the Public Administration with particular attention, taking into account that the related VAT must be recorded in the sales register regularly, but will not participate in the periodic VAT settlement. Furthermore, the amount of VAT subject to split payment must be highlighted on the invoice, which the public body will not pay to the supplier but to the tax offices.

Practical example

It is immediately clear how the normal mechanisms for calculating credit / debit VAT for periodic closures, and in particular for those who use management programs, are completely changed and the new rules must be applied by not calculating the VAT of the PA as VAT payable . The appearance of the bills for the PA also changes, as amounts that did not exist before must be highlighted. In short, a small revolution.

Let’s see a practical example from which we will obtain an invoice with the new data and from there we will continue with the related accounting records for the issue and adjustment of VAT.

The invoice must indicate the amount of VAT subject to split payment. This amount will be reversed from the invoice total to determine the net amount to pay. Suppose we need to issue an invoice of € 10,000.00 + VAT 22%, this must indicate:

• that the VAT of € 2,200.00 is subject to split payment
• the total invoice for € 12,200.00 (€ 10,000.00 + € 2,200.00);
• net to be paid € 10,000.00

From an accounting point of view, the company will record the receivable from the public body, noting VAT and the revenue item as a counterpart as has always been done.

At this point, to update the VAT debit account (as mentioned, the VAT split payment does not contribute to the VAT debit) and the credit towards the PA, a specific adjustment must be made. The VAT amount will be reversed from the total credit to the public body and at the same time the amount of the debit recorded in the Sales VAT account will be decreased, as shown in the subsequent entry.

THE FINANCIAL IMPLICATIONS

For companies that have mainly public entities as clients or that are already structurally on VAT credit due to their activity, the split payment mechanism represents a big problem in financial management and, for some (or many, perhaps, in this difficult phase ) may cause liquidity crises and increase in interest costs (use of credit). As a palliative to this situation, the Ministry has promised a privileged and rapid route, with the VAT refund as a priority. However, this too will not be a solution that will give certainty and ease of recovering liquidity: there are several obstacles.

• In the event of high business volumes with PAs that lead to credit surpluses exceeding € 700,000.00, the annual compensation limit will have to be taken into account.
• In order to use the VAT credit surplus of a significant amount, it will be necessary to affix a certificate of conformity on the return
• For reimbursements over € 15,000 a guarantee (surety) is required. In order to have the refund without guarantee, several conditions are required, thus increasing the burden on the company (see below).

Conditions for reimbursement over 15,000 euros without guarantee

A (quarterly) declaration or application must be submitted showing the credit requested for reimbursement bearing the approval of compliance or the alternative signature of the supervisory body. This declaration or request must be accompanied by a substitutive declaration of an affidavit certifying the existence of the following conditions in relation to the subjective characteristics of the taxpayer:

• the shareholders’ equity has not decreased by more than 40% compared to the accounting results of the last tax period;
• the consistency of the properties has not decreased, compared to the accounting results of the last tax period, by more than 40% due to sales not carried out in the normal management of the business;
• the activity itself has not ceased or reduced due to the sale of companies or branches of companies included in the aforementioned accounting records;
• in the year preceding the request, shares or quotas of the same company for an amount exceeding 50% of the share capital are not sold, if the redemption request is presented by capital companies not listed on regulated markets;
• social security and insurance contributions were duly paid.

SUPPORT FOR SPLIT PAYMENT IN AMICA 10

After having explained in detail everything concerning split payment, let’s see how we intervened on [Amica 10] to comply with the law. We had to intervene on the sales documents (invoices and credit / debit notes), on the VAT reasons, on the VAT calculations and closing, and finally on the export of electronic invoices for the PA. From version 2.12 of Amica, online for download since yesterday , support for split payment is complete.

VAT reasons

In the VAT Reasons window we have introduced a new selection box called Split Payment. In order to make invoices with VAT in split payment it is necessary to use specific VAT reasons, with the relative box selected as you can see in the image:

Reason for VAT with active split payment.

Sales invoices

After having correctly configured the VAT reason we can proceed to fill in the invoices with split payment. We insert one or more lines of the details, taking care to select the one with active split payment as the reason. The result we will have in the Totals tab of Amica is the following:

Total document with split payment amount highlighted.

As you can see, there is a new box called Split Payment which indicates the split payment VAT amount for the document. Note that the Net to Pay is equal to the Total Invoice minus the Split Payment. Now let’s see how split payment is represented in the printing phase:

Print preview of an invoice with specified split payment amount.

As always in the Amica 10 prints, the position and appearance of the split payment field is fully customizable. Keep in mind that, for the predefined printouts only, we have inserted an automatism (also configurable) for which the split payment item appears in print only if a VAT reason with split payment has been used.

The new default prints are available in new companies, or in the Sample Company (for new installations). In existing companies you can import the default print template (using the Import Print from File option accessible by the black arrow next to the Design Print button) or, if your print templates are customized and therefore you cannot overwrite them with the predefined templates , you can intervene directly using the new variable Documento.TotaleSplitPayment.

VAT closure

In the VAT Closure processing window, on the Sale tab, there is now the Split Payment column where the split payment quota is highlighted for each VAT register. If you work with VAT for cash, the same information is shown for each document listed in the grid containing the document list.

Processing a VAT closure with split payment in evidence.

Electronic Invoices for the PA

Here, even if there are no visible aspects, all the necessary changes have been made to give full support to split payment. Your invoices can then be exported and sent to the public administration interchange system (SDI) and will be correctly received, with the split payment clearly highlighted in the electronic file.