Payment purpose for sole proprietors, LLCs, and individuals: how to fill it out without tax or banking risks

The purpose of payment must accurately correspond to the actual transaction and the documents on the basis of which the funds are transferred. The wording in the payment instruction itself does not turn payment for goods into a gift, a loan into financial assistance, or business income into personal funds. Tax consequences are determined by the actual substance of the transaction, the status of its participants, agreements, primary documents, and applicable tax rules.

For a business owner, a safe approach is as follows: first determine the legal basis for the payment, prepare an agreement, invoice, delivery note, act, or another appropriate document, and then indicate in the payment the type of transaction, document details, period, and VAT information. When selling goods or services, it is also necessary to check whether the payment constitutes a settlement transaction requiring the use of an ECR or pECR.

What the law requires to be specified in the purpose of payment

The payer must complete the «Purpose of payment» field so that the recipient receives complete information about the payment and the documents on the basis of which it is made. The payer determines the completeness of the information in accordance with applicable legislation.

When accepting a payment instruction, the bank checks this field only for formal compliance. This means that the bank does not confirm the correctness of the tax classification of the transaction and does not determine whether the transfer is actually a gift, loan, proceeds, or payment for goods.

For most business payments, it is advisable to specify:

• type of transaction: payment, advance payment, refund, rent, loan, financial assistance;

• subject of payment: goods, a specific service, premises rent, refund;

• number and date of the agreement, invoice, delivery note, act, or application;

• the period for which the payment is made;

• VAT information, if it corresponds to the tax status of the transaction;

• if necessary — order number, customer number, personal account number, or another identifier.

A universal structure may look as follows:

«[Type of payment] for [goods, services, or another transaction] under [document name] No. ___ dated ___. [VAT information]».

What the purpose of payment does not determine

The phrases «Not income», «Personal funds», «Gift», «Without VAT», or «Repayable assistance» do not by themselves create a tax exemption.

Tax accounting must be based on primary documents, accounting registers, financial statements, and other documents related to the calculation and payment of taxes. Preparing tax reporting on the basis of unsupported data is prohibited.

Therefore, the wording in the payment must confirm an already documented transaction rather than replace its documentary evidence.

Recommended purposes of payment for business

The wording «Payment», «Transfer of funds», «For work», or «Personal transfer» is not prohibited as such, but it usually does not make it possible to clearly link the funds to an agreement, invoice, or another transaction.

Depositing personal funds into a Sole Proprietorship account

Cash proceeds already included in income

If a Sole Proprietorship that is a single tax payer deposits cash proceeds into a business account that have already been recorded as income, the State Tax Service recommends specifying:

«Deposit of cash proceeds for the period from 01.08.2026 to 05.08.2026».

The amount deposited must not exceed the amount of proceeds recorded as income for the relevant period. Under these conditions, the same proceeds are not included in income again.

For confirmation, it is necessary to retain:

• income records for the relevant period;

• ECR or pECR reports, if they were used;

• cash and goods documents;

• bank receipts confirming the cash deposit.

Personal savings of a Sole Proprietorship

The phrase «Deposit of personal funds. Not income» does not guarantee that the amount will be excluded from business income.

According to the current position of the State Tax Service, personal funds deposited into a business account are not included in the income of a single tax payer if they were taxed when accrued or paid and there are documents confirming the source of the funds and payment of taxes. These may include information from the State Register of Individual Taxpayers, income certificates, settlement documents, documents confirming the sale of property, or other evidence.

Possible wording:

«Deposit of personal funds into a business account. Source — previously taxed income. Without VAT».

Documents confirming the stated source must be attached to the bank statement.

Transfer between own business accounts

Recommended wording:

«Transfer of own funds between Sole Proprietorship business accounts. Without VAT».

Statements from both accounts should be retained to show that the funds were not received from a new customer but were only transferred between the accounts of the same business owner.

Transfer of funds from a Sole Proprietorship account to the owner’s personal account

Possible wording:

«Transfer of Sole Proprietorship’s own funds to personal account. Without VAT».

Such a transfer is not a separate business expense and does not eliminate the obligation to first account for business income and pay the applicable taxes.

Loan and repayable financial assistance

A loan or repayable financial assistance must involve a genuine obligation to repay the funds. It is advisable to conclude a written agreement even where the law does not expressly require a written form.

A loan agreement must be concluded in writing if the amount of a loan between individuals is at least ten times higher than the statutory tax-free minimum income, and where the lender is a legal entity — regardless of the amount.

Recommended wording:

Granting a loan:

«Granting an interest-free loan according to loan agreement No. 5 dated 04.08.2026. Repayment term — by 04.08.2027. Without VAT».

Repayment of a loan:

«Repayment of the principal amount of the loan according to agreement No. 5 dated 04.08.2026. Without VAT».

Provision of repayable financial assistance to a company or Sole Proprietorship:

«Provision of repayable financial assistance according to agreement No. 7 dated 04.08.2026. Without VAT».

Repayment of financial assistance:

«Repayment of repayable financial assistance according to agreement No. 7 dated 04.08.2026. Without VAT».

For a single tax payer, the amount of repayable financial assistance is not included in income if it is repaid within 12 calendar months from the date of receipt. If this period is exceeded, the outstanding amount is included in income under Article 292 of the Tax Code. The wording «repayable financial assistance» alone, without an agreement and actual repayment, does not ensure such treatment.

Interest for the use of funds, penalties, debt forgiveness, and failure to repay a loan have separate tax consequences and must be documented separately.

Gifts and transfers between relatives

The phrase «Cash gift» does not automatically mean that no taxes are due.

For gifts between individuals, the tax treatment depends on the degree of kinship and the tax residency of the parties:

• gifts from first- and second-degree family members are subject to personal income tax at a zero rate;

• a gift from another resident individual is subject to 5% personal income tax and 5% military levy;

• special rules apply to transactions involving non-residents, including an 18% personal income tax rate and military levy at the applicable rate.

First-degree family members include parents, a husband or wife, and children. Second-degree family members include siblings, grandparents, and grandchildren.

For a genuine gift, the following wording may be used:

«Cash gift from father to daughter».

or

«Cash gift according to gift agreement dated 05.08.2026».

It is advisable to retain a gift agreement or written statement from the donor, documents confirming family relationship, and evidence of the source of funds.

A payment from a legal entity or Sole Proprietorship to an individual does not become a tax-free family gift merely because of the wording used. For a company, such a payment may constitute an additional benefit, promotional incentive, charitable assistance, employee payment, or another transaction subject to separate tax rules.

Assistance to parents, children, and other relatives

The phrase «Financial assistance» is not a universal tax exemption. The actual basis for the transfer must be established:

• gift;

• alimony;

• loan repayment;

• performance of an obligation under an agreement;

• reimbursement of documented expenses;

• maintenance of a family member.

For alimony, the following wording may be used:

«Alimony for child support for August 2026».

Alimony paid in accordance with a court decision or a voluntary arrangement between the parties in cases specified by the Tax Code is not included in the recipient’s taxable income.

For an ordinary non-repayable transfer of money to an adult child, parents, or other persons, the tax treatment must be determined under the gift taxation rules.

Charitable assistance

The wording «Charitable assistance» must correspond to an actual charitable transaction.

A company should verify:

• who the recipient is;

• whether the organisation has non-profit status;

• the charitable programme or purpose of the funding;

• whether there is a request letter, agreement, management decision, or another document;

• whether the funds are intended for a specific purpose;

• which tax rules apply to the recipient.

Example:

«Charitable donation for implementation of programme ___ according to agreement No. ___ dated ___. Without VAT».

A transfer of funds to an ordinary individual with the wording «Charitable assistance» does not automatically exempt it from personal income tax and military levy. Specific conditions of the Tax Code must be met for charitable assistance to be tax-exempt.

VAT information in the purpose of payment

The wording «Without VAT» is not an independent basis for not charging VAT.

VAT treatment is determined based on:

• the supplier’s status;

• the type of transaction;

• the place of supply;

• the availability of an exemption or «not subject to taxation» treatment;

• the date on which the tax liability arises;

• the agreement, invoice, and tax invoice.

If the transaction is subject to VAT, the payment instruction may state:

«Including VAT 20% — UAH 2,000».

If the supplier is not registered as a VAT payer:

«Without VAT».

If the transaction is exempt from taxation, the wording «Without VAT» in the tax invoice must be accompanied by a reference to the provision of the Tax Code that provides for the exemption.

Incorrectly specifying «Without VAT» does not eliminate tax liabilities for a transaction that is actually subject to VAT.

Taxes, Unified Social Contribution, customs, and other budget payments

Standard commercial templates should not be used for the payment of taxes, fees, Unified Social Contribution, customs payments, licence fees, and other payments to the budget.

Order of the Ministry of Finance No. 148 provides for a structured «Purpose of payment» field. For ordinary tax payments, fields including «Payment type code» and «Additional payment information» are completed. When using a single account, additional structured fields may also be required.

A safe procedure is as follows:

1. Obtain current account details from the Electronic Cabinet or the official website of the State Tax Service.

2. Select the template for payment of the relevant tax or Unified Social Contribution in the banking system.

3. Check the recipient code, IBAN, payment type code, tax period, and payer information.

4. Do not copy account details from old payment instructions without verification.

When a bank may request documents

Banks apply risk-based financial monitoring. They analyse not only the purpose of payment but also the nature of the customer’s activities, expected and actual transaction volumes, counterparties, regularity of payments, economic substance, and sources of funds.

Depending on the circumstances, the bank may request:

• agreement;

• invoice, delivery note, or act;

• documents confirming the sale of property;

• loan or gift agreement;

• documents confirming family relationship;

• tax return;

• income certificate;

• bank statements;

• documents confirming the source of savings;

• explanations regarding the economic substance of the transaction.

The documents requested and the depth of the review depend on the risk associated with the specific customer and transaction. The law does not establish a rule under which every transfer above a certain ordinary amount is automatically blocked solely because of its size.

The greatest risk arises when actual transactions do not correspond to:

• the declared type of business activity;

• the business owner’s normal turnover;

• information previously provided to the bank;

• tax reporting;

• agreements and primary documents;

• the purposes of payments.

Providing false documents to the bank or artificially splitting transactions does not reduce the risk and may instead lead to enhanced review.

How the purpose of payment is related to ECR and pECR

An ECR or pECR is used not because of a particular word in the purpose of payment, but depending on the method of accepting payment and the nature of the settlement transaction.

According to official explanations of the State Tax Service:

• cash payment requires processing through an ECR/pECR unless a lawful exemption applies;

• payment by bank card through a POS terminal, internet acquiring, LiqPay, and similar services constitutes a settlement transaction;

• a direct bank transfer by the customer to the seller’s current account using IBAN details does not require an ECR/pECR;

• first-group single tax payers benefit from a separate statutory exemption.

For distance sales, the seller must determine in advance:

• who receives the money from the customer;

• whether acquiring is used;

• whether the postal operator acts on behalf of the seller;

• who is required to generate and provide the fiscal receipt;

• when the settlement transaction occurs.

The wording «Payment to IBAN» does not exempt the transaction from the use of an ECR if the customer actually paid by card via an acquiring link. At the same time, a regular transfer from the customer’s account to the seller’s IBAN does not become a card settlement transaction merely because the payer initiated it through mobile banking.

For failure to process a settlement transaction through an ECR/pECR, processing it for an incomplete amount, or failure to issue a proper settlement document, paragraph 1 of Article 17 of Law No. 265 provides for a financial penalty:

• 100% of the amount of the sale made in violation — for the first violation;

• 150% — for each subsequent violation.

How to correct an incorrect purpose of payment

Before the funds are debited, the payer may revoke the payment instruction or create a new one — in accordance with the procedure established by the agreement with the bank.

After the funds have been debited, the bank generally does not change the purpose of an already completed payment. Clarification is handled directly between the payer and the recipient. This approach is set out in the letter of the National Bank of Ukraine concerning replacement of information in the «Purpose of payment» field.

Recommended procedure:

1. The payer prepares a letter clarifying the purpose of payment.

2. The letter specifies the date, amount, payment instruction number, incorrect wording, and correct wording.

3. The recipient confirms agreement in writing or prepares its own accounting note.

4. The letters are attached to the bank statement, agreement, and primary documents.

5. If the error concerns the counterparty, amount, or a payment made without a legal basis, it is advisable to return the funds and make a new payment.

6. If the error affected VAT, single tax, corporate income tax, ECR, or reporting, the relevant documents and tax records must also be corrected separately.

A special procedure for clarification and refund applies to tax and budget payments. An ordinary letter between the payer and the recipient does not automatically change the allocation of the payment in the taxpayer’s integrated account card.

What liability may arise from incorrect payment documentation

The legislation does not establish a separate tax penalty solely for using a general phrase such as «Transfer of funds» or «Payment».

Liability arises from an actual violation that may accompany an incorrect purpose of payment:

• income was not included in the tax return;

• VAT was determined incorrectly;

• primary documents are missing;

• a fictitious loan or gift agreement was prepared;

• an ECR/pECR was not used;

• personal income tax or military levy was not withheld;

• taxes or Unified Social Contribution were not paid;

• incorrect reporting was submitted;

• false information was provided to the bank;

• funds were used contrary to the conditions of targeted financing.

In such cases, additional taxes, penalties, and interest may be assessed, and the bank may apply financial monitoring measures in accordance with the law and its internal procedures.

Example from court practice

In a tax dispute, the court upheld the position of the tax authority because the primary documents provided by the company contained inconsistencies and did not confirm the reality of the business transactions. The court stated that the obligation to prove that the transactions actually took place and to confirm them with proper documents rests with the taxpayer. The judgment also took into account a similar position of the Supreme Court in case No. 640/21884/20.

Therefore, even a correctly worded purpose of payment does not compensate for the absence of goods, services, an agreement, delivery note, act, or other evidence confirming the actual transaction.

Internal rules for Sole Proprietorships and companies

To reduce tax and banking risks, a business should approve internal templates for purposes of payment.

Minimum checks before sending a payment:

1. The recipient and IBAN correspond to the agreement or invoice.

2. The type of payment corresponds to the actual transaction.

3. There is an agreement, invoice, delivery note, act, application, or another document.

4. The document number and date are specified correctly.

5. The advance payment, final settlement, or refund is identified correctly.

6. VAT information corresponds to the documents.

7. For a loan or financial assistance, the repayment period is specified.

8. For deposits of personal funds, their origin is confirmed.

9. For payments to an individual, personal income tax, military levy, and tax agent status have been checked.

10. For sales, it has been determined whether an ECR/pECR is required.

11. For taxes and Unified Social Contribution, the current structured template has been used.

12. The payment is linked to the transaction in the accounting or management accounting system.

Access to creating and signing payment instructions should be divided among employees. One employee prepares the payment, another checks the documents and details, and an authorised person signs it.

Bank statements, payment orders, and payment reconciliation in Torgsoft

Torgsoft supports work with bank statements for accounts. After a statement is uploaded, the transaction can be transferred to financial accounting, after which the software creates a financial document. For an incoming payment that cannot be identified immediately, an unidentified payment can be created and later linked to the corresponding customer invoice. This helps prevent the same payment from being credited twice and makes it possible to see payments that still require verification.

A payment order in Torgsoft can be created based on supplier information and a purchase delivery note. After the payment is actually processed by the bank and the bank statement is received, the transaction is transferred to a financial document and linked to the corresponding delivery note. Financial documents for the current account can be viewed separately, which simplifies reconciliation of the agreement, delivery note, payment amount, and debt to the counterparty.

The software helps organise banking transactions, customer payments, settlements with suppliers, and movement of funds across accounts. At the same time, the business owner determines the legal and tax meaning of the purpose of payment. Therefore, it is advisable to use payment-purpose templates approved by the company in Torgsoft and verify them against the agreement, invoice, delivery note, or act before making the payment.

Official sources

1. Law of Ukraine «On Payment Services» dated 30.06.2021 No. 1591-IX — Articles 40–45 concerning payment instructions and execution of payment transactions:
   https://zakon.rada.gov.ua/laws/show/1591-20

2. Instruction on Cashless Payments in the National Currency of Payment Service Users, approved by Resolution of the Board of the National Bank of Ukraine dated 29.07.2022 No. 163 — paragraphs 37, 41, 42:
   https://zakon.rada.gov.ua/laws/show/v0163500-22

3. Law of Ukraine «On Prevention and Counteraction to Legalisation (Laundering) of Proceeds...» dated 06.12.2019 No. 361-IX — Articles 7, 11–13:
   https://zakon.rada.gov.ua/laws/show/361-20

4. Regulation on Financial Monitoring by Banks, approved by Resolution of the Board of the National Bank of Ukraine dated 19.05.2020 No. 65:
   https://bank.gov.ua/admin_uploads/law/19052020_65.pdf

5. Tax Code of Ukraine dated 02.12.2010 No. 2755-VI — paragraph 44.1; subparagraphs 165.1.14, 165.1.31; Articles 167, 174, 185, 201, 292, 296; subsection 10 of Section XX:
   https://zakon.rada.gov.ua/laws/show/2755-17

6. Civil Code of Ukraine dated 16.01.2003 No. 435-IV — Articles 717–719 concerning gifts, Articles 1046–1049 concerning loans:
   https://zakon.rada.gov.ua/laws/show/435-15

7. Law of Ukraine «On Accounting and Financial Reporting in Ukraine» dated 16.07.1999 No. 996-XIV — Article 9:
   https://zakon.rada.gov.ua/laws/show/996-14

8. Regulation on Documentary Support of Accounting Records, approved by Order of the Ministry of Finance dated 24.05.1995 No. 88:
   https://zakon.rada.gov.ua/laws/show/z0168-95

9. Law of Ukraine «On the Use of Registrars of Settlement Transactions in Trade, Public Catering and Services» dated 06.07.1995 No. 265/95-VR — Articles 2, 3, 9, 17:
   https://zakon.rada.gov.ua/laws/show/265/95-%D0%B2%D1%80

10. Order of the Ministry of Finance of Ukraine dated 22.03.2023 No. 148 «On Approval of the Procedure for Completing the “Purpose of Payment” Field...»:
    https://zakon.rada.gov.ua/laws/show/z0528-23

11. Letter of the National Bank of Ukraine dated 09.06.2011 No. 25-111/1438-7141 «On Replacement of Information in the “Purpose of Payment” Field»:
    https://zakon.rada.gov.ua/laws/show/v7141500-11

12. Official explanation of the State Tax Service regarding the deposit of personal funds and cash proceeds into a Sole Proprietorship account:
    https://if.tax.gov.ua/media-ark/news-ark/935530.html

13. Official explanation of the State Tax Service regarding taxation of gifts:
    https://tax.gov.ua/deklaratsiyna-kampaniya-2026/informatsiyni-povidomlennya/997097.html

14. Official explanation of the State Tax Service regarding ECR/pECR for card payments, internet acquiring, and direct transfers to IBAN:
    https://rv.tax.gov.ua/media-ark/news-ark/887421.html