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New rules for calculating advance payments

New rules for calculating advance payments

PUBLICATIONS \ 23.06.2020

The Tax Code has been amended with regard to the calculation and payment of advance payments for profits tax. Ekaterina Lutenko, Acsour’s internal auditor, has explained what has changed in the legislation and what method of calculation to choose.

A business applying the general taxation system should calculate and transfer profits tax to the country’s budgetary system. The tax is calculated from the base, i.e. the taxable profit, which is defined as the difference between an organization’s income and its expenses.

The period for which the tax is paid is equal to one year. And those payments that an organization transfers to the state budget during this period are called advance payments. The procedure for making advance payments depends on the method that the organization uses for its calculation.

THREE METHODS

If a company is a payer of profits tax, then in accordance with the legislation, it is automatically equated with the number of payers of advance payments. At the same time, the method of its calculation will depend on the amount of the company’s revenue for four quarters and on which category of payers the organization belongs to. The Tax Code of the Russian Federation establishes the following three options for calculating and making advance payments.

  1. Based on the results of the reporting period (the first quarter, the half year, and the first nine months), taking into account the monthly advance payments made within each reporting period.
  2. Based on the results of each reporting period, without taking into account the payment of monthly advance payments.
  3. Based on the results of the reporting period (one month, two months, three months, etc.) proceeding from the profit actually made.

We turn our attention to each of the methods of calculation in more detail. The first method is generally accepted. It is used by companies that:

  • are not within the category of theatres, museums, libraries, or concert organizations. Advance payments do not need to be calculated and paid to state-financed institutions;
  • do not have the right to pay quarterly advance payments without taking into account the payment of monthly advances;
  • have not submitted a statement for the transition to making monthly advance payments on actual profit to the tax service.

With this method, the organization’s accountant focuses on the actual figures of the previous quarter, companies make monthly advance payments, and at the end of each reporting period (quarter), they make advance payments based on the profit actually made, taking into account the sums previously transferred to the budget.

However, if the calculated amount of monthly payments turns out to be negative or equal to zero, no quarterly payments are made.

The second method may be used by companies whose amount of revenue for the previous four quarters is not more than 15,000,000 rubles for each quarter or who carry out a type of activity that is mentioned in clause 3 of article 286 of the Tax Code of the Russian Federation.

In this method, the amount of quarterly payments that should be paid to the budget subsequent to the results of the reporting period is calculated as the difference between the amount of the quarterly payments for the current and previous reporting periods.

Please note! Changes have been made to the Tax Code in terms of calculating by this method. Their purpose is to provide state support to enterprises whose business activity has been affected by the spread of a new coronavirus infection. In particular, the amount of revenue for determining advance payments in 2020 was increased from 15,000,000 to 25,000,000 rubles. This means that if, for the II, III, and IV quarters of 2019 and for the I quarter of this year, the amount of revenue did not exceed the new threshold limit in each quarter, the company will be able to switch to making quarterly advance payments without taking into account monthly payments from the second quarter of 2020. If you have already sent your tax return to the inspectors, we recommend that you submit an updated report using a new calculation method.

The second method of calculation is also used by companies if the established revenue limit is met for the III and IV quarters of 2019 and for the I and II quarters of 2020. In this case, switching to the new payment system will be possible starting from an advance payment based on the results of the first half of 2020.

Finally, the second method of calculating advance payments may be used by enterprises if the rules on income are met during the IV quarter of 2019 and during the I, II, and III quarters of 2020. In this case, you may also make a transition to a new method of calculation; it is possible to do so starting from the payment of an advance based on the results of the first nine months of 2020.

Please note! The company is not obliged to send to the tax inspectorate a notification of the transition to a new procedure for paying advance payments. However, to avoid possible questions from the inspectors about the reason for the non-payment of monthly payments, it is still better to send such a document to the inspectorate.

In conclusion of the review of methods for calculating payments using the second method, it should be noted that the limit of 15,000,000 rubles will continue to apply from the next tax period.

The third method may be called a new one. It may be used by enterprises that make quarterly payments with the payment of monthly advances within each quarter. To switch to this method, it is necessary to submit a corresponding statement to the tax inspectorate before December 31 of the current year. The Tax Code of the Russian Federation contains no other requirements for migration to this method of calculating and paying advances.

The amount of advance payments is calculated by the company based on the tax rate and the profit actually made, which is calculated on an accrual basis from the beginning of the tax period until the end of the corresponding month. And the amount of advance payments to be paid to the country’s budget for the corresponding reporting period is determined as the difference in the amounts of advance payments calculated based on the results of the current and previous reporting periods.

It is possible to switch to the specified payment system from next year, since, under the general rule, it is forbidden to change the payment method to the specified procedure during the tax period. However, since the publication of Federal Law No. 121-FZ dated April 22, 2020, the rules for switching to advance payments based on actual profit have been changed.

AMENDMENTS TO LAW NO. 121 FZ

The new rules define the following: “If, in 2020, an organization paid monthly advance payments calculated from the profit of the previous quarter, then it will be possible to switch to paying advances based on the profit actually made ahead of time during the current year”. In order for a company to use this opportunity, it should submit a notification to the tax authority at the company’s location. The deadline for submitting the document is not later than the 20th day of the last month of the reporting period starting from which the organization plans to switch to making monthly advance payments based on actual profit. For example, for calculating monthly advances for the reporting period from January to June, the last day for submitting the notification will be June 20 of the current year.

The recommended format of the notification is provided in the Appendix to the Federal Tax Service’s Letter No. SD43/6802 dated April 22, 2020. The new procedure for calculating payments should also be reflected in the organization’s accounting policy.

DEADLINES OF PAYMENT

The deadline for paying profits tax at the end of the year is not later than March 28 of the year following the one that has expired. At the same time, it does not matter how advances are calculated and transferred to the budget.

But the deadline of making advance payments themselves depends on the method of calculation chosen by the company. Special deadlines are set for those companies that, as of March 1, 2020, are included in the Unified register of small and medium-sized business entities, and also carry out their activities in the industries most affected by the coronavirus (Decrees of the Government of the Russian Federation No. 434 dated April 3, 2020, and No. 657 dated May 12, 2020). For more information about the period for making of advance payments (AP), see table 1.

The method of calculating APDeadline for paymentSpecial deadline of payment to SMEs affected by the coronavirus
Quarterly advance payments with payment of monthly AP within each quarter
Monthly AP (MAP)Not later than the 28th day of each month of this quarter.
–       for March – not later than March 30;-       for April – not later than April 28;
–       for May – not later than May 28;
–       for June – not later than June 28.
–       for March – not later than September 28;
–       for April – not later than August 28;
–       for May – not later than September 28;
for June – not later than October 28.
AP–       I quarter – not later than April 28;
–       II quarter (half year) – not later than July 28;
III quarter (9 months) – not later than October 28.
–       I quarter – not later than October 28;
II quarter – not later than November 30.
Quarterly advance payments without payment of MAP
AP–       I quarter – not later than April 28;
–       II quarter (half year) – not later than July 28;
III quarter (9 months) – not later than October 28.
–       I quarter – not later than October 28;
II quarter – not later than November 30
Monthly AP based on the profit actually made
Monthly APNot later than the 28th day of the month following the reporting period.
–       January – March – not later than April 28;
–       January – April – not later than May 28;
–       January – May – not later than June 29;
January – June – not later than July 28.
–       January – March – not later than October 28;
–       January – April – not later than September 28;
–       January – May – not later than October 28;
January – June – not later than November 30.

  

As for profits tax itself, affected small and medium-sized enterprises may pay tax for 2019 not later than September 28 of the current year.

WHICH CALCULATION METHOD SHOULD BE CHOSEN?

The choice of a particular system for calculating advance payments is associated with the nature of the company’s activities. If its performance is stable, and the amount of income and expenses is evenly distributed, it is better to choose the calculation of advances based on the figures of previous periods (quarterly payments with monthly payments within each quarter, or only quarterly ones). However, do not forget that the right to calculate quarterly payments without taking into account monthly payments may be obtained if the mandatory conditions that we discussed earlier are met.

If the organization’s activities are unstable, influenced by seasonal and other factors, and the income received is either significant or, on the contrary, is minimal, it is better to choose the option of calculating advances based on the profit actually made. This method is particularly preferable if the company has been affected by the spread of the virus. At the same time, the calculation of payments based on profit actually made imposes a large burden on the accounting department, since the frequency of calculations increases; therefore you will have to check every time that the expenses incurred are valid and confirmed, basic source documents have been accurately drawn up, as well as to timely reflect the company’s income and expenses in the accounting records. This makes the accounting process more complex and imposes certain risks (the more complex the process, the more likely missing something and making a mistake become). Therefore, we recommend carefully considering the method of calculating advance payments or, if an additional guarantee is necessary, to transfer a part of the accounting functions to accounting outsourcing. In this case, the provider will perform all the necessary operations, and your company will be able to do the rest of the work.  

Ekaterina Lutenko

Internal Auditor