Looking back @2021 #11: Split Payments

What is VAT Split Payment?

Under the VAT Split Payment mechanism, invoices paid to the supplier’s account are divided into two parts:

The net price of the commodity is paid directly to the supplier’s business bank account.
The VAT amount is paid to the supplier’s dedicated VAT account.

It is mainly introduced to combat fraud

Italy and Poland are the countries in the European Union where the system is applied

In Italy, the split payment mechanism is applied to goods and services provided to public bodies as well as companies included in the Financial Times Stock Exchange ( FTSE MIB index). As per the split payment scheme in Italy, customers pay the net amount to the supplier’s bank account and VAT amount to the VAT bank account allocated to them by the authorities.
In Poland, the customers will have to make the payment only to the bank who will then divide the payment between the supplier account and the allocated bank account. However, the Polish authority has not mandated the application of split payment mechanism and businesses can choose to not apply it.

Highlights in 2021

VAT Split Payment mechanism remains a complexity for business to manage. Further guidance has been issued by tax authorities.
VAT Experts suggest VAT Split Payment as an efficient means to combat fraud.
Poland reduces the threshold for the mechanism to apply
United Kingdom and Slovakia are assessing potential implementation
(Note that Romania abolished the VAT Split Payment mechanism per February 1, 2020)

Newsitems posted in 2021 related to Split Payments

European Union

Italy