Trial company - how to prove yourself as an entrepreneur? Unregistered activity

Do you sometimes wonder what it's like to be an entrepreneur and run your own business full-time? Sometimes the start of self-employment begins by looking for opportunities to earn extra money and selling unused items or buying various items hoping to resell them later at a profit. Sometimes, on the other hand, it is small services provided to neighbours or friends or to businesses as a subcontractor.

This is how you carry out an undeclared activity - what are the consequences and what should you pay attention to in order to avoid negative consequences?

Economic activity vs. non-registered activity

The conduct of business activities is regulated in Poland by the Act of 6 March 2018. Entrepreneurs' Law. An entrepreneur is an entity that should be entered in a specific register - in the case of natural persons, it is the Central Register of Business Activity and Information (CEIDG), in the case of commercial law companies or other entities (e.g. associations or foundations), it is the Register of Entrepreneurs of the National Court Register.

Nevertheless, in Article 5 of the above-mentioned Act we will encounter a definition of the so-called unregistered (non-registered) business activity. Such activity may be pursued by a natural person, whose income does not exceed 75% of the minimum remuneration for work, as well as who has not carried out any economic activity for the preceding 60 months. A person conducting unregistered activity is not obliged to register with the CEIDG - registration means having the status of an entrepreneur.

Undeclared activities - limits and restrictions

The limit of 75 per cent of the minimum remuneration that can be achieved in a calendar month is currently PLN 3,181.50 (from 1 July it will be PLN 3,225.00) and this represents the maximum amount of income that a taxpayer can receive. What is worth noting is that this is the amount of revenue due, which means that this limit also includes funds that we should have received from our contractor, but due to his delay we did not actually receive it.

On the other hand, the subject of non-registered activity cannot be an activity which requires a permit, concession or entry in the register of registered activity (e.g. sale of alcohol, waste collection or protection of persons and property). In addition, the provisions of the Act of 6 March 2018. Entrepreneurs' Law do not impose restrictions on the type of activities that may be performed as part of non-registered activities. This means that the subject matter of such activity can be both the sale of products, goods and the provision of services.

Taxation issues

Pursuant to the Personal Income Tax Act of 26 July 1991, revenue from activity pursued personally is classified as revenue from the so-called other sources and is subject to personal income tax under the general rules, i.e. the tax scale. This follows directly from the wording of Article 20(1ba) of the aforementioned Act, according to which income from other sources referred to in Article 10(1)(9) is also deemed to be income earned from the activities referred to in Article 5(1) of the Act of 6 March 2018. - Entrepreneurs' Law.

Actual taxation, however, applies to income, i.e. the excess of income over the costs of obtaining it. If you are employed under a contract of employment or a contract of mandate, your income from undeclared activities is combined with this income and is subject to joint taxation. Therefore, beware of exceeding the amount of PLN 120,000.00 - this will result in the need to tax the excess income over that amount at the higher rate of 32%.

Unlike in the case of an employment relationship or contract of mandate, a taxpayer is not obliged to settle tax advances during the year. The amount of income earned in a given year is taxed independently after its completion, by 30 April of the following year.

How do you calculate the income that an undeclared activity can generate?

If you sell goods manufactured by yourself, the expenses you have incurred for the purchase of materials are deductible. If, on the other hand, you are reselling finished goods, their advance purchase is tax deductible for you.

It is slightly more difficult to identify deductible costs in the case of the provision of services, in which case the ability to recognise an expense will depend on the type of services provided. This is because, as a general rule, for an expense to be tax deductible, it should be incurred for the purpose of generating revenue.

If, as part of your non-registered activity, you provide services to an entrepreneur, he should prepare for you a PIT-11, in which he will indicate the amount of revenue. On the other hand, the issue of incurred costs should be controlled on your own - you should remember that only such expenses that are properly documented can be recognised as tax deductible, which means that you must have a proof of purchase (e.g. a receipt or invoice) and a confirmation of payment.

VAT

As far as VAT is concerned, virtually any activity that goes beyond the employment relationship or civil law contract will constitute an economic activity within the meaning of Article 15 of the VAT Act of 11 March 2004. In view of this, as a general rule, undeclared activity constitutes an activity subject to VAT.

However, if the annual revenue from sales does not exceed PLN 200,000.00 (which is the limit significantly exceeding the maximum revenue for non-registered activity), it is possible to benefit from the VAT exemption provided for in Article 113(1) of the VAT Act. In this case, it should be borne in mind that there is a catalogue of activities which are not subject to this exemption, such as e.g. consultancy services. In this case, when providing advisory services as part of non-registered activity, one should register for VAT purposes and issue invoices for the services provided.

A separate basis for the exemption is Article 43(1) of the VAT Act, which indicates a catalogue of activities, irrespective of the amount of revenue obtained, not subject to VAT - such as e.g. letting of flats for residential purposes.

Social security and health insurance

While the issue of taxation of unregistered activities does not seem problematic, the issue of social insurance raises significantly more problems. In the context of insurance, it should be pointed out at the outset that social insurance (and contributions) and health insurance (and health contribution) are distinguished.

Pursuant to Article 6(1 ) of the Act of 13 October 1998 on the social insurance system, a person who performs work on the basis of an agency agreement or a contract of mandate or other contract for the provision of services to which the provisions on mandate apply pursuant to the Civil Code, as well as a person who conducts non-agricultural business activity is subject to social insurance contributions.

In the opinion of the Social Insurance Institution, a person conducting so-called non-registered activity is not an entrepreneur within the meaning of the aforementioned Act. Nevertheless, in the opinion of the authority, such a person, in the event that he or she provides services to other entities, in fact performs it on the basis of a civil law contract, which is the basis for social insurance coverage (as well as health insurance coverage). Such a view is confirmed, inter alia, by individual interpretations of the President of the Social Insurance Institution (ZUS) of 23 November 2023, No.: DI/100000/43/713/2023 and of 23 November 2023, No.: DI/100000/43/766/2023.

An analogous situation will also occur in the case of health insurance, since pursuant to Article 66 of the Act of 27 August 2004 on health care services financed from public funds, a person subject to health insurance is, inter alia , a person running non-agricultural business activity and a person performing work on the basis of an agency agreement or a mandate agreement or other agreement on the provision of services to which the provisions of the Civil Code on mandate apply.

The above means that, although for income tax purposes the principal does not act as a payer, for social insurance purposes it is obliged to calculate, collect and pay insurance contributions. A certain exception is the case of persons who, in addition to their non-registered activity, are also employed on the basis of an employment relationship or civil law contract, from which they earn at least the minimum wage. In this case, within the framework of social insurance, there is a so-called concurrence of titles and it is not necessary to pay contributions. In the case of health insurance, on the other hand, each title constitutes the basis for paying the health contribution, hence it should obligatorily be collected by the entity paying remuneration.

If, on the other hand, the subject of the non-registered activity is not the provision of services but the sale of goods, then in the opinion of ZUS, such an acquisition is not subject to the obligation to pay social and health insurance contributions.

Unregistered activities - planned changes

On 5 April, a draft bill on amending certain laws to deregulate economic and administrative law and to improve the principles of drafting economic law appeared, which will amend the provisions on social insurance in respect of unregistered activity.

The drafted Article 6(4aa) of 13 October 1998 on the social insurance system assumes that the persons referred to in Article 5(1) of the Act of 6 March 2018. - Entrepreneurs' Law, are not subject to compulsory pension and disability insurance if they are persons performing work on the basis of a contract referred to in paragraph 1(4), provided that such a contract is concluded within the framework of the activity referred to in Article 5(1) of the Act of 6 March 2018. -Entrepreneurs' Law.

This solution should therefore definitively put an end to the questioning by ZUS of the right not to be subject to social security and health insurance contributions in the case of providing services within the scope of unregistered activity. The justification for the draft act indicates that the current legal status lacks regulations on the issue of contributions for civil law contracts concluded within the framework of so-called unregistered activity (small activity, e.g. providing tutoring, baking cakes on a small scale). As a result, the principals (e.g. a student or the person ordering the cake) are forced to report the contractor (the person performing the so-called unregistered activity) for social security contributions. This constitutes a deviation from the purpose for which unregistered activity was established. As a result of the amendment, this inconsistency will be eliminated.

Is this a solution for you?

It should be emphasized that the effects of conducting unregistered business vary depending on its subject. Are you interested in this form of business, or maybe you have someone who conducts such business with you? If you want to verify the correctness of the settlements made, contact us, we will certainly be able to help you!