Publication date: June 17, 2025
One of the absolutely key issues in running any business is the accounting of revenues and costs. Based on Polish legal regulations and established accounting practices, various accounting documents are used to document business transactions. In the context of contractual penalties, we most often deal with two types of documents – an accounting note and a debit note. These terms are sometimes used interchangeably, but their application and meaning may vary depending on the context and practices adopted in the company. This article will discuss the basic issues related to maintaining such documents in the context of provisions on contractual penalties.
What is an accounting note and what is a debit note?
An accounting note is an accounting document that is not a VAT invoice, but is used to document operations that are not subject to VAT, such as: contractual penalties, interest for late payment, re-invoices not covered by VAT (e.g. reimbursement of costs without margin), donations and other non-invoice operations . An accounting note does not have to contain the same elements as a VAT invoice, but it should meet the requirements specified in art. 20 sec. 2 of the Act of 29 September 1994 on accounting (Journal of Laws of 2023, item 120; amended: Journal of Laws of 2023, item 295 and of 2024, item 619, item 1685 and item 1863) – according to this provision, the basis for entries in the accounting books are accounting evidence of the performance of a business transaction, also called “source evidence”:
Therefore, an accounting note is a special type of accounting document used when specific operations are not subject to the provisions of the Act of 11 March 2004 on Goods and Services Tax (Journal of Laws of 2024, item 361; amended: Journal of Laws of 2021, item 2105, of 2024, item 1473, item 1721 and item 1911 and of 2025, item 222). They can therefore constitute the basis for reporting revenues or costs, depending on who issued them and their nature.
Accounting notes in the form of a debit, credit or debit-credit are accounting documents used in settlements between contractors to document operations to which the provisions of the VAT Act do not apply, i.e. those for which tax regulations do not provide for a different method of documentation. An accounting note can be issued, among others, in situations such as: charging the debtor with interest on unpaid liabilities; charging a contractual penalty for improper or untimely performance of an obligation; charging the contractor with compensation; transferring to the buyer costs not subject to VAT (stamp duties, membership fees, etc.), or charging the employee with the costs of penalties, damage caused or detected shortages. It should be noted that it is not possible to transfer to the buyer costs subject to VAT by issuing an accounting note. All transactions subject to VAT should be re-invoiced taking into account the VAT rate appropriate for the given product or service.
An accounting note is therefore not an alternative to an invoice or re-invoice, it is a separate document used only when VAT is not involved. Accounting notes should also not be used to document transactions exempt from VAT either subjectively or objectively, as VAT exemption is not the same as an operation that is not subject to the provisions of the Act on VAT. In business practice, accounting notes are most often used to charge the debtor with interest for late payment of liabilities or to calculate penalties and compensation resulting from agreements concluded with contractors. In turn, a debit note is an accounting document (often the same meaning as an accounting note), which is used to unilaterally charge a contractor with the amount of receivables – most often also not subject to VAT, e.g. for: contractual penalties, interest, damages, re-invoicing costs without VAT. In practice, an accounting note and a debit note may be the same document, differently named by entrepreneurs.
When is an accounting note issued and when is a debit note issued?
An entrepreneur can and should issue an accounting note when a contractual penalty is claimed from a contractor, e.g. for: untimely performance of a service, failure to perform an obligation or improper performance of a contract. A contractual penalty is not subject to VAT (this is confirmed by the general interpretation of the Minister of Finance from 2021), because it does not constitute remuneration for a service or goods, is of a compensatory nature (in accordance with the case law of the Court of Justice of the European Union and the Supreme Administrative Court) and is not related to any paid activity within the meaning of the provisions on the tax on goods and services (for example: entrepreneur X was to perform the renovation on time, but was late; the contract provided for a contractual penalty of PLN 1,000 for each day of delay, so entrepreneur Y issues an accounting note for the amount of PLN 5,000 as a penalty). A VAT invoice is not issued because the service is not documented and there is no basis for charging VAT (no paid activity). The accounting note should be recorded in the accounting records as a receivable. If the contractual penalty has been paid, it is necessary to record the impact in the operating income account. If the penalty has not been paid, it is possible to create write-offs. There is no regulation that obligatorily requires the issuance of an accounting/debit note, but the entrepreneur should issue an accounting note if they document a claim for a contractual penalty that is to be entered in the accounting records, want to effectively demonstrate the receivable to the contractor (e.g. when pursuing a claim), or their internal procedures or accounting requirements require an accounting document.
Contractual penalty in the context of VAT
The basic legal provision that regulates the issue of contractual penalties is Art. 483 of the Act of 23 April 1964 – the Civil Code ( Journal of Laws of 2024, item 1061; amended: Journal of Laws of 2024, item 1237). It states that it may be stipulated in the contract that the redress of damage resulting from non-performance or improper performance of a non-monetary obligation will be made by paying a specified sum, which in civil law is called a contractual penalty. In addition, the debtor cannot, without the consent of the creditor, release themselves from the obligation by paying a contractual penalty. In the event of non-performance or improper performance of the obligation, the contractual penalty is due to the creditor in the amount reserved for this case, regardless of the amount of the damage suffered. A claim for compensation exceeding the amount of the reserved penalty is not admissible, unless the parties have agreed otherwise. However, in a situation where the obligation has been largely fulfilled and when the contractual penalty is significantly excessive. Therefore, both the purpose of the contractual penalty and compensation is financial compensation for the loss or damage incurred. The value added tax applies to the paid supply of goods and the paid provision of services within the territory of the country. In order to exclude the taxation of compensation with VAT, reference should be made to the provisions of the Value Added Tax Act (more precisely, Articles 7 and 8 of the VAT Act). The paid supply of goods is the transfer of the right to dispose of goods as an owner. It follows directly from the cited definition that a contractual penalty does not constitute a supply of goods. The provision of services is considered to be any provision for the benefit of a natural person, a legal person or an organizational unit without legal personality, which does not constitute a supply of goods. As a rule, the provision is subject to VAT only when the provision of the service is for a fee, provided that there is a direct link between the service provided and the remuneration received. The calculated contractual penalty constitutes a separate obligation, is not a direct consequence of the performance of the service and is not a mutual benefit, therefore it is not subject to value added tax. In accounting practice, activities not subject to VAT are documented with ordinary invoices, accounting notes or other external accounting documents within the meaning of the Accounting Act. In accordance with art. 14 sec. 2 item 4 of the Personal Income Tax Act of 26 July 1991 (Journal of Laws of 2025, item 163; amended: Journal of Laws of 2025, item 340, item 368, item 620 and item 680), contractual penalties constitute income from business activities. It is irrelevant whether a given type of contractual penalty constitutes a tax cost of the contractor, which will be discussed in detail later in the article. It should be noted that issuing an accounting note does not yet constitute income within the meaning of the Personal Income Tax Act. Income is created only upon receipt of the contractual penalty, i.e. on the date of receipt of funds in non-cash or cash form. Income from receiving a contractual penalty is subject to inclusion in column 8 Other income in the tax book of income and expenses (this is an accounting record used to record business transactions in a simplified form – it records all types of income (sales income, as well as other income), purchase of commercial goods and basic materials and incidental costs related to these purchases, as well as expenses, which should be understood as remuneration, both in cash and in kind, as well as all other expenses related to conducting business activity).
Settlement of the cost of paying the contractual penalty
An important issue is that a contractual penalty cannot always be included in tax costs. Article 23 section 1 item 19 of the Personal Income Tax Act states that contractual penalties and compensation for defects in delivered goods, performed works and services and delays in delivering goods free from defects or delays in removing defects in goods or performed works and services have been excluded from the costs of obtaining revenues. Other contractual penalties constitute a tax cost when the purpose of incurring them is to maintain or secure the source of revenues, provided that there has been no violation of the law, they are not the result of the entrepreneur’s negligence or irrational actions taken by him. In practice, this means that a taxpayer who includes a contractual penalty in the costs of obtaining revenues in the event of a potential inspection is obliged to demonstrate to the tax authority that he has exercised all due diligence in order to avoid, for example, a delay in the delivery of goods or services, but despite this, the transaction has not been completed within the time specified in the contract. A contractual penalty for withdrawal from a contract may be included in tax costs, provided that such a decision by the entrepreneur is economically justified and rational from the point of view of obtaining the highest possible revenues, i.e. when, due to various circumstances, it is more profitable for the taxpayer to terminate the contract than to fulfill it. The moment of including a contractual penalty in the costs of obtaining revenues (if it meets the conditions for recognizing it as a tax cost) for a taxpayer keeping a tax book of revenues and expenses is the day the cost is incurred, i.e. the payment of the contractual penalty. The date of issue of the accounting document constituting the basis for recording the cost, i.e. in particular the accounting note, is therefore irrelevant both from the point of view of showing revenue for the taxpayer receiving the contractual penalty and the cost for the entrepreneur obliged to pay the penalty.
Interest on overdue trade liabilities on the creditor’s and debtor’s side
The Personal Income Tax Act also contains provisions on the method of settling interest on unpaid liabilities calculated on the basis of an accounting note – it is analogous to the case of a contractual penalty documented by such a note. (This means that the creditor’s income is generated upon receipt of funds, and not upon issuance of an accounting note). Two provisions are key in this area – Art. 14 sec. 3 item 2, which states that the income referred to in sec. 1 and 2 does not include the amounts of accrued but unpaid interest on receivables, including on loans granted. On the other hand, the debtor’s cost is generated on the date of payment, and not on the date of receipt of an accounting note (Art. 23 sec. 1 item 32 of the Personal Income Tax Act states that the following are not considered to be costs of obtaining income: accrued but unpaid or written off interest on liabilities, including loans (credits)). Interest on time-barred or written off liabilities will also not be included in the costs of obtaining income. When determining the moment of creation of income/tax expense from the receipt/payment of interest on untimely payment of liabilities or a contractual penalty, the date of issue of the debit note is irrelevant, the date of actual receipt/payment of funds is what counts. In order for interest or contractual penalties to constitute a cost for the taxpayer, they must be paid, not just accrued, then the creditor is also obliged to show income from this. Both contractual penalties and interest on untimely paid liabilities are not subject to VAT, therefore, in order to charge the debtor, a VAT invoice should not be issued, but another accounting document, e.g. an accounting note.
Practical tips for keeping accounting notes
When maintaining documentation of business operations, it is necessary to perform certain activities that will make proving certain circumstances in any future court or enforcement proceedings much easier. For example, before issuing an accounting note, the entrepreneur should have a confirmed reason for charging a penalty (e.g. a report, delay report, correspondence with the contractor) and rely on a clearly written contractual provision (e.g. “a penalty of PLN 100 is charged for each day of delay”). If the note is to be used in court, it must be well-justified and documented. In addition, it should be remembered that a note is not equivalent to a demand for payment, but it can function as a demand if it contains the appropriate elements (e.g. payment deadline, account number, description of the basis for the claim). For the effectiveness of debt collection, it is also worth issuing a separate demand for payment, especially if the contractor avoids payment. Moreover, it is also necessary to take care of the accounting treatment of the contractual penalty – the creditor (charging the penalty) must record operating income and a recording on the receivables side in the accounting books, while the debtor (charged with the penalty) must record operating costs and a liability to the creditor. A contractual penalty may also be income for the creditor and a cost for the debtor, but on the debtor’s side it often does not constitute a cost of obtaining income if it results from unlawful actions, e.g. delays or improper performance of the contract. Under Art. 16 sec. 1 point 22 of the Act of 15 February 1992 on Corporate Income Tax (Journal of Laws of 2025, item 278; amended: Journal of Laws of 2025, item 340, item 620 and item 680), contractual penalties and compensation for defects in delivered goods, performed works and services and delay in delivering goods free from defects or delay in removing defects in goods or performed works and services are not considered to be costs of obtaining revenues. It is also important that if the accounting note is abused, e.g. for the apparent calculation of contractual penalties, which are de facto a form of hidden payment (e.g. a fee for early termination of the contract), the tax authorities may question the lack of VAT. Therefore, it should be remembered that a contractual penalty is a sanction, not remuneration, and not every “penalty” named in the contract is actually a contractual penalty within the meaning of tax law.
Summary
Accounting notes and debit notes are undoubtedly some of the most important documents that appear in the course of business activities conducted by entrepreneurs. The ability to distinguish them and properly conduct them is one of the most crucial issues that every entrepreneur must master. Only in this way will the economic and financial affairs of the company prove to be less problematic, and pursuing claims for contractual penalties will be much easier.