In the Polish language, the word 'dochód' is very often used interchangeably with the word 'przychód'. For many people, these words mean the same thing. Certainly, this is influenced not only by the similarity of the names, but also by their meaning, as they are both directly related to obtaining financial resources. Nevertheless, the difference between these terms is crucial. So what do they really mean?
Revenue is defined as all funds that represent the total net value derived from the sale of goods, goods or services. This amount does not reflect the actual financial position. Revenue can be obtained by:
- conducting business,
- the holding of an employment relationship,
- the provision of contract work,
- the performance of work in an official capacity,
- possession of the property.
What can be considered as entrepreneurial income is defined in the Corporate Income Tax Act. This is, of course, money as well as acquired property and rights. Persons owning a company should remember that revenue does not determine the financial situation of a company, which can only be assessed once all costs incurred to obtain the revenue have been deducted from the revenue.
Deductible costs - what are they?
As the name implies, deductible expenses are the sum of all expenses that are incurred to obtain, preserve or secure income. Each of these amounts must be related to the business and the expense itself must be well documented (e.g. in the form of an invoice) and proven by the payer.
When running a business, basic deductible costs include the purchase of commercial goods and materials that ensure the smooth operation of the company - i.e. any kind of equipment or office furnishings. Costs can also include services (e.g. bookkeeping), fees related to the company's bank account, employee salaries, advertising costs or business trips.
Not only sole traders can benefit from the deduction of deductible costs. Such a privilege is also available to those providing services under an employment contract, contract of mandate or contract for specific work. In this case, however, a fixed monthly amount is deducted from income. The tax-deductible costs rates for employment contracts, effective in 2020, are as follows:
- PLN 250 per month for a local employee (annually PLN 3,000 from one contract, PLN 4,500 from many),
- PLN 300 per month for a commuting employee (£3.6k per year from one contract, £5.4k from many).
What is income?
Knowing the concept of income, and knowing that its value must be deducted by the costs of obtaining it, we obtain income, i.e. pure profit, which the entrepreneur or employee receives "in hand". In the simplest terms, it is therefore income from which costs have been deducted.
Income is therefore a real reflection of a company's financial position. Importantly, these concepts are always linked. If there is no revenue, we cannot speak of income either. For income to exist, revenue must be greater than the costs of generating it. Otherwise, we cannot speak of income, but only of a financial loss incurred.
In terms of income, there are two basic categories:
- gross income - being the excess of revenue over the cost of obtaining it before tax,
- net income - i.e. the excess of revenue over the cost of revenue after deduction of due taxation.
How do you calculate net income?
As mentioned earlier, gross income, i.e. that which is untaxed, is calculated by subtracting the costs of obtaining it from the income. However, the concept of net income and the matter of calculating it remains.
To do so, tax must be deducted based on the relevant tax rate:
- PIT - in the case of natural persons; settled under the general rules (i.e., taking into account a two-stage tax scale [17 and 32 per cent], where the interest rate depends on the income earned) or by means of a flat tax (whose value of 19 per cent is fixed and independent of the income earned),
- CIT - in the case of legal persons.
The specific tax rate must then be subtracted from the gross income amount, as this is the basis for the tax deduction. In the case of a flat rate, the tax is deducted directly from the amount of income.
