How should VAT be charged? The complete guide for self-employed entrepreneurs

When you set up a micro-business, the administrative side can be daunting, with so many declarations to be made.

Once the paperwork is in order, you start your business and your first customer calls on your services. And then the drama begins. You have to draw up an invoice, but you have no idea what to do. How do you draw up an invoice as an auto-entrepreneur? What information is required? What rate of VAT applies? Are auto-entrepreneurs exempt ? How do you calculate the amount of VAT?

These words can be frightening, but we're a long way from a journey worthy of Asterix and Obelix's A-38 pass.

With our comprehensive guide, co-written with Charlène Serayet, managing director of Dasmind and an expert in administrative management, you'll no longer be wondering how to charge VAT as a micro-entrepreneur.

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What is VAT?

Definition of VAT

VAT, or Value Added Tax, is an indirect tax that we all pay on the purchase of goods or services, included in the final sale price. That's why all invoices and till receipts are marked with the two words :

• Excluding VAT, which corresponds to the seller's remuneration;
• TTC, or All Taxes Included, which corresponds to the price before tax plus the amount of VAT.

For example, when you buy bread from your favourite baker, you also pay VAT. Your baker must then, in turn, pay the VAT he has collected. 🥖

Well, as a self-employed entrepreneur, you have to do the same thing!

The different VAT rates applicable

There are different VAT rates applicable in France. Obviously, the amount of VAT is not up to the merchant; each rate is defined by the service you offer as a self-employed entrepreneur.

• The standard rate is 20%, applicable to most sales of goods and services. If there is no specific rate for your activity, then this is automatically the rate.
  
  
• The reduced rate of 10% applies to certain activities frequently offered by auto-entrepreneurs:
  • hairdressing and beauty services,
  • activities relating to intellectual works, such as literary translation,
  • certain artistic activities,
  • food sales and catering,
  • passenger transport,
  • accommodation services,
  • removal services,
  • home improvement and garden maintenance,
  • photography,
  • translation services,
  • home childcare,
  • sales of agricultural products processed by the farmer...
    
    
• The reduced rate of 5.5% also applies in very specific contexts:
  • takeaway catering
  • equipment and services for the disabled
  • book sales,
  • work to improve the energy quality of housing,
  • services linked to access to cultural activities, such as museums or historic monuments,
  • equestrian activities.
    
    
• The special rate of 2.1% applies to a small number of services:
  • the sale of live butchery and charcuterie animals to non-taxable persons,
  • certain shows (theatres, concerts),
  • press publications registered with the Commission paritaire des publications et agences de presse.
    
    
• A different VAT rate applies to the French overseas departments. In these cases, the standard rate is reduced from 20% to 8.5%.

These are just examples, and the actual amount obviously depends on your business and the service you offer.

Even if the most common rate is 20%, don't hesitate to check the actual percentage to avoid making a mistake. The website of the Ministry of the Economy and Finance provides a detailed list of the applicable rates.

Accounting obligations for auto-entrepreneurs?

As a self-employed entrepreneur, you have to comply with certain obligations when doing your accounts. Whether or not you are liable for VAT, you must keep strict accounts.

By reading your accounts, it should be possible to identify the amount of all transactions received, and the details of these (for example, the method of payment, the origin of the revenue, the dates, the details of the service provided, the references of the products bought and sold, etc.).

In the case of self-employed entrepreneurs liable for VAT, this must also be indicated.

💡 There is no legal obligation as to the method used to do your bookkeeping.

When do you have to charge VAT as a self-employed entrepreneur?

The different ceilings

We've seen that there are different VAT rates, and as if that wasn't enough, there are also different ceilings for auto-entrepreneurs.

They are set for a three-year period, meaning that those currently in place are valid for the years 2023, 2024 and 2025.

💡 For your first year as an auto-entrepreneur, your turnover threshold is adjusted according to your operating time. This is known as prorata temporis.

Let's take a closer look at the ceilings:

Trading or accommodation activities

To take advantage of the basic VAT scheme for self-employed entrepreneurs, you need to be in one of the following situations:

• For year N-2, the ceiling for benefiting from the basic VAT threshold is €91,900.
• For year N-1, the ceiling remains the same, i.e. €91,900. If the ceiling for year N-2 is respected, you benefit from a tolerance threshold of €101,000.
• For the current year N, you must keep your turnover below the tolerance threshold to continue to benefit from the basic VAT exemption the following year.

👉 For example, if your turnover is €85,000 for the year 2022, you are exempt for the following year. In 2023, your turnover is €95,000. You have exceeded the ceiling, but you are still below the tolerance threshold. You are therefore still exempt from basic VAT for 2024.

Provision of services or self-employed activities

As in the previous case, you must be in one of the following situations:

• For year N-2, the ceiling for benefiting from the basic VAT scheme is €36,800.
• For year N-1, the ceiling remains the same. In addition, if your turnover does not exceed this ceiling in year N-2, you will benefit from the tolerance threshold of €39,100.
• For the current year N, you must keep your turnover below the tolerance threshold to continue to benefit from the basic VAT exemption the following year.

👉 For example, if your turnover is €35,000 for the year 2023, you are exempt for the year 2024. But during that year, you make a turnover of €102,000, so you are no longer eligible for the basic VAT scheme for 2025.

Lawyers and authors of intellectual works

To remain eligible for the basic VAT exemption, you must be in one of the following situations:

• For year N-1, your turnover must not exceed €47,700.
• For the current year N, your turnover must not exceed €58,600.

👉 For example, if your turnover is €37,760 for 2023, you will still be covered by the basic MT scheme in 2024.

Unregulated activities

As in the previous case, there are only two options here:

• For year N-1, turnover must be less than €19,600.
• For the current year N, turnover must not exceed €23,700.

👉 For example, if your turnover is €24,673 in 2023, you will not be exempt in 2024.

Exemption under the basic VAT exemption

The basic VAT exemption is the first system for micro-enterprises. It automatically exempts self-employed entrepreneurs from having to declare and pay VAT. You therefore need to draw up your invoices without the tax.

Not all auto-entrepreneurs are eligible for this scheme. The only condition is that your annual turnover does not exceed the basic threshold. Ceilings are therefore set according to the type of activity.

However, there is a tolerance threshold (except for the first year of business) which allows you to continue to benefit from this scheme even if you exceed the ceilings. Please note, however, that the tolerance threshold is only valid for 2 consecutive years.

💡To find out whether you are exempt, you need to look at your turnover for the previous year. For example, for 2024, the turnover for 2023 is taken into account.

What happens if you exceed the threshold?

In all cases, you must pay VAT from the first day of the month in which the threshold is exceeded. You then need to report this to your business tax department (SIE).

👉 For example, if you exceed the VAT threshold on 13 December, you must charge VAT for the whole month of December. You then need to amend the invoices already issued and add the necessary details (we'll get to that shortly).

💡VAT can be deducted from your business purchases, this is known as VAT recovery. You need to apply for this to the tax authorities when you file your VAT return for the first month in which the VAT is exceeded.

Then you need to choose a new regime for your self-employed business. 👇

The simplified scheme

Under the simplified scheme, your micro-enterprise is taxed on the basis of your profits.

You automatically benefit from this scheme as soon as you exceed the basic VAT exemption thresholds.

✅ Under the simplified scheme, you only have to declare VAT once a year, which reduces your reporting and payment obligations. However, you must pay two instalments during the year, in July (55%) and December (40%), based on the previous year's turnover .

For self-employed entrepreneurs, this system is the most advantageous, as it allows you to keep simplified accounts.

The normal scheme

The standard scheme is a much more restrictive VAT system, especially for self-employed entrepreneurs, and requires much more precise accounting.

You benefit from this system as soon as you exceed the limits of the simplified system.

✅ You must declare your VAT every month, according to the date predefined for your business. However, if the annual amount due is less than €4,000, you can opt for quarterly declaration and payment.

You can opt for this system even if you are eligible for the basic exemption or simplified system.

A word from the expert

The transition to the real VAT system can also represent an opportunity for professionalisation. Over and above the administrative burden, this approach enables VAT to be reclaimed on purchases and investments, thereby reducing costs.

A practical tip for entrepreneurs is to invest in software that simplifies monitoring of thresholds and automatically generates VAT returns. Not only does this ensure compliance with the regulations, it also enables you to manage your cash flow more effectively and anticipate costs.

Good to know: the VAT rate to be invoiced changes according to your services, but also according to the location of your customer. If you are in France, but you are invoicing a company located in La Réunion, the VAT rate will be either 8.5% or 2.1%, depending on your service.

Charlène Serayet,

How do you charge VAT when you are a self-employed entrepreneur?

Calculating the amount of VAT

Now that you know the rate applicable to your business, all that remains is to calculate the amount of VAT.

If you've followed this correctly, charging VAT will have an impact on prices, because it's your customers who pay. So your prices will undoubtedly rise.

The method of calculation is not very difficult: VAT exclusive × VAT rate.

A quick example?

You're a photographer with a 10% VAT rate, and you need to calculate the VAT for a service that costs €100. The amount of your VAT is therefore €10 (100 × 10 / 100 - 100 × 0.1).

The information required on your invoices

For self-employed entrepreneurs who are not liable for VAT, you simply need to indicate the following: "TVA non applicable article 293B du Code général des impôts".

For self-employed entrepreneurs liable for VAT, you must include a certain amount of information:

• unit prices excluding VAT
• the total before tax
• the applicable VAT rate,
• the amount including VAT,
• the VAT number (for amounts over €150 excluding VAT).

Avoiding errors with software

Even with the best will in the world, mistakes can happen. But when it comes to such a precise procedure, it's best not to make any mistakes to avoid any problems.

👉 In the event of errors or omissions, you must pay a surcharge of 10% if you do not spontaneously regularise your situation within two months.

Accounting software is particularly effective, as it makes no mistakes. It provides the best possible support for all your accounting, including VAT.

Abby is a solution for self-employed entrepreneurs looking for simple , comprehensive software to manage all their activities:

• invoicing
• declaring social security contributions
• bookkeeping.

As well as helping you to draw up your invoices, the application uses your receipts to automatically give you the amounts of all the VAT collected. All you have to do is enter them on your return! It saves you time and energy.

The steps for declaring and paying VAT as a self-employed entrepreneur

Now that you have everything you need to do things properly, it's time to declare your VAT.

All auto-entrepreneurs subject to VAT must make their declaration, so if you benefit from the basic VAT exemption scheme, you're off the hook!

For the rest of you, don't worry, you've done the hard part.

We'll look at how to do it, step by step.

#1. Check whether I'm liable for VAT

First of all, take the time to check whether you are liable for VAT. We indicated the various limits you should not exceed earlier.

• For your first year in business, calculate your turnover on a pro rata basis according to the date on which you started. This will determine your scheme for the following year.
• For subsequent years, you need to look at your turnover for year N-1.

Refer to the ceilings. ☝️

#2. Create a professional account

The entire process is carried out on the tax website. You therefore need to create a business account and follow the steps indicated.

#3. Obtain my VAT number

Every entity liable for VAT must have an individual tax identification number, known as an intra-community number.

To obtain this, you need to apply to your local business tax office.

💡 This number is compulsory, and you must indicate it on your invoices.

#4. Choose a tax system

When you apply for your VAT number, you must also choose the tax regime you want, either the simplified regime or the normal regime.

If you have followed this correctly, it is the scheme that determines how you declare and pay VAT. The rate is the same, regardless of the system you choose.

However, if you take no action, you will automatically be covered by the simplified scheme, provided you are eligible.

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Invoicing VAT as a self-employed entrepreneur, in brief

VAT is one of the obligations you have to take care of as a self-employed entrepreneur.

Whatever your business and the services you offer, you need to keep up to date with all the procedures relating to your situation: turnover, tax rate, scheme, etc. You'll no longer have any secrets about these concepts, so you can carry on with your business with complete peace of mind.