The lower threshold relief will be abolished on 01.01.2025: how will this major change affect small businesses?

The abolition of the lower threshold for VAT relief from the beginning of 2025 will bring new challenges for entrepreneurs with a business name. The lower threshold relief was an important support for small businesses, but with its abolition, many business owners will now face additional costs and more administrative obligations. Light entrepreneurship offers a flexible and cost-effective alternative for those entrepreneurs who want to continue their business without the extra burden of VAT.

The lower threshold relief was particularly useful for small business owners, easing the VAT burden on small businesses. In practice, it meant that if the turnover of a sole trader was below a certain amount, they received partial or full relief on the VAT they paid. In 2023, this threshold was set at €15 000, which meant that small business owners were able to reduce their tax burden.

The benefits of the lower limit relief included:

1. Reduction of the tax burden: For small businesses, the lower threshold relief meant that they did not have to pay VAT in full, which improved their financial situation and left more money for themselves.
2. Improving profitability: The VAT relief helped small business owners to remain profitable by reducing the amount of tax relative to their income. This was particularly useful in the early stages of a business when revenues may still be limited.
3. Cost competitiveness: The lower threshold relief allowed small traders to offer more competitive prices to their customers, as they did not have to include full VAT in their invoices.
4. Simplified accounting and taxation: With the lower threshold relief, entrepreneurs had fewer administrative obligations in terms of taxation, which made entrepreneurship more flexible and reduced the need to outsource accounting.

The relief allowed entrepreneurs to concentrate on developing their business without VAT eating up a significant proportion of their income. Now, with the abolition of this relief, entrepreneurs will pay VAT in full, which may increase administrative and financial pressure, especially for those with a small turnover.

What is light entrepreneurship and how does the lower threshold relief affect it?

Light entrepreneurship is an alternative to a sole proprietorship and own business, where a person can charge for their services without having to set up their own business. A self-employed person uses a billing service, which in turn takes care of billing, taxation and other administrative obligations. This frees the entrepreneur to focus on the core business and significantly reduces the administrative burden. Light entrepreneurs will not be directly affected by the abolition of the franchise, as they will not be responsible for paying VAT themselves. In the case of light entrepreneurs, VAT is collected, accounted for and reported by the invoicing service and is automatically included in the amounts invoiced through the invoicing service. This means that even if the lower threshold relief is abolished, light entrepreneurs will not face a change in tax or additional obligations, as these are taken care of by the invoicing service.

Freedom and ease - focus on your core competences

One of the biggest benefits of being a light entrepreneur is the freedom to focus on your core skills. As a self-employed person, you have to take care of invoicing, VAT, accounting and tax returns, which takes time and requires accuracy. As a light entrepreneur, the invoicing service takes care of these for you, leaving you free to focus on finding customers, getting work done and developing your business. This makes everyday life easier and reduces stress, especially now that the abolition of VAT relief brings more reporting obligations.

A risk-free and flexible way to try

Light entrepreneurship offers flexibility, especially for part-time and start-up entrepreneurs. As a light entrepreneur, you can experiment with different services and markets without a long-term commitment to entrepreneurship. This makes light entrepreneurship a risk-free alternative to self-employment, as the billing service allows you to easily suspend or scale up your activities according to your situation.

Economic benefits: savings in administrative costs

There are various costs involved in running a business, such as accounting costs, financial reporting fees and possible insurance and reporting obligations. As a light entrepreneur, you only pay a small service fee to the invoicing service, and they take care of all the administrative aspects for you, including VAT. This saves the entrepreneur administrative costs and, as the VAT relief is withdrawn, eliminates additional costs that, as a sole trader, you would have to pay in full.

Better cash flow management - no VAT worries

As a business owner, cash flow management is key, as VAT has to be paid regardless of whether your customers have already paid their invoices. As a light entrepreneur, the invoicing service takes care of paying VAT, so you don't have to worry about having money in the account to pay tax before the revenue arrives. This makes it easier to manage your finances and ensures that you can focus on your business without worrying about heavy tax monitoring.

An easier and faster way to become an entrepreneur

Becoming a light entrepreneur is quick and only requires registering for a billing service. This means you can get straight down to business without the costs and obligations of setting up a company. If your business is occasional or part-time, this can be a big relief, because as a light entrepreneur you don't have to worry about things like VAT registration or input tax.

Is light entrepreneurship right for you?

The abolition of the lower threshold exemption may bring additional administrative burdens and costs for business owners, but light entrepreneurship offers a clear and cost-effective alternative. If you value administrative simplicity, lower risks and flexibility, light entrepreneurship could be the right solution for you. At the same time, you can enjoy the freedom of entrepreneurship and focus on doing what you do best.

Light entrepreneurship is particularly suited to the following situations:

• Your activity is part-time or seasonal
• You want to reduce administrative burdens
• You work as a consultant, freelancer or on a project
• The abolition of VAT relief will significantly increase your tax costs

Light entrepreneurship is a flexible way to put your professional skills into practice without the pressure of entrepreneurship. Whether it is a full-time or part-time business, light entrepreneurship offers an easy and cost-effective route forward. See our flexible pricing.

If you are considering light entrepreneurship and want to know more, please contact us. We will be happy to help you choose the right option and support you in your transition towards a new model of entrepreneurship.

Read more about the abolition of the lower limit relief from the Tax Administration's website