Transition from small business taxation to regular taxation
December 22, 2020 | 28,00 EUR | answered by Steuerberater Knut Christiansen
Hello, I am a self-employed IT service provider and have so far made use of the small business regulation. The revenues of previous years were always below 17,500. This year, fortunately, I was able to work more and am now allowed to issue some invoices by the end of the year. Since this year I also had to purchase some hardware for my VAT-liable customers (and bought a notebook and peripherals for myself in spring), I am wondering if it would make sense to opt for VAT as of this year (retrospectively) and to now also show it on the invoices. What do I need to consider? How should I inform the tax office? What else would I have to deal with (besides being bound to the standard taxation for 5 years)? I wrote an interim invoice at the end of last year, for which a final invoice is now to be issued. Would the VAT only be calculated on the amount incurred this year, or also on the already paid interim sum? Thank you very much! Florian Scholz
Good day and thank you for using ask-a-pro.com!
I would like to answer your question as part of an initial consultation.
It would be advisable to waive the small business regulation if, in the end, you would receive a refund or if it would not be a problem to retroactively charge sales tax on the invoices you have already issued. If you are still able to calculate the sales tax afterwards, you would not be stuck with the sales tax. However, if your customers are not willing to pay the sales tax retroactively, you would have to pay the sales tax from the money you have received. Therefore, you would need to calculate how it would financially impact you (specifically: how much sales tax you would have to pay, how much input tax you could offset from received supplies and services, and how much sales tax you would still receive retroactively from the customers).
You would need to inform the tax office informally by letter. Furthermore, you would have to correct the invoices to your customers and indicate the sales tax.
Regarding the progress invoice, the sales tax that would be applicable upon completion of the service would apply. So if you only completed the service in 2020, you would have to charge sales tax on the entire amount, not just the portion you received or billed in 2020.
I hope I have answered your question, if not, feel free to contact me with your follow-up question.
Best regards!
Knut Christiansen
Tax consultant
