Flat Rate Scheme or Simplified Scheme?
A professional, about to start his own business, will be faced with the choice of adopting one of
the following tax regimes:
1. Flat Rate Scheme (The only tax advantage scheme at present);
2. Simplified scheme.
At first glance, convenience falls on the flat rate scheme as the tax rate is extremely low: the rate is 5% in the case of start-ups for the first 4 years and 15% afterwards. Tax rates with the simplified scheme, on the other hand, range from a minimum of 23% to a maximum of 43% with the progressive method of staggered irpef legislation.
However, it is important to know the basic characteristics of the flat-rate scheme in order to make a considered choice between the latter regime and the simplified regime.
In the flat-rate scheme, unlike the simplified scheme, the income subject to taxation is not determined on the basis of the classic difference between compensation (receipts) and costs but through the application of a percentage of forfeiation to compensation.
Therefore, in the flat-rate scheme, it is not possible to deduct costs. For example, a professional, who applies the flat-rate scheme, will determine his taxable income in this way: 10,000 euros (a hypothesis of compensation collected in a year) – 78% (percentage of flat percentage) – 7,800 (income on which the rate of 5% or 15%) will apply.
This way of determining income will certainly be good for all those professionals who do not have many costs to deduct, however, this particularity of the flat-rate scheme must be taken into account by those professionals who instead feel that they have to bear, perhaps especially at an early stage, higher costs that could lower the income below what is expected with the application of the percentage of flat rate.
A further feature of the flat-rate scheme is that it is inhibited to deduct charges (except that of social security contributions paid to the INPS or your own fund) and/or the deduction of additional charges provided, on the other hand, by the IRPEF legislation.
So those who apply the flat-rate scheme will be able to deduct only social security contributions and will not be able to deduct medical expenses, building renovations, insurance, etc…. Deductions and deductions are very important because they sometimes significantly reduce the IRPEF to be paid. The only case in which a flat-rate trader will be able to deduct/deduct the charges will be if he also enjoys another income, for example an employee income.
Of course, it is important to take into account the additional advantages that the flat-rate scheme offers over the simplified scheme and which go beyond the lower rates:
– Non-application of Irap and VAT: the latter advantage is particularly important for those who work with individuals. The flat-rated trader will be preferred over his competitors as he will not have to increase his fees with the application of VAT to 22%.
– Non-application of withholding tax: the receipt of the trader will not be reduced by 20% and compared to the professionals who apply the simplified scheme will be able to fully collect the amount of the invoice issued.
– Non-application of Sector Studies: this characteristic is extremely important, especially for those who start their business and who cannot achieve the level of compensation required by the presumptive instrument of sector studies.
– No sending of the expenditure, no sending of periodic VAT and annual VAT declaration and compared to taxpayers applying the simplified scheme, taxpayers under a flat-rate scheme will not be obliged from 1 January 2019 to issue the electronic invoice in respect of other undertakings or private individuals.
In conclusion, the flat-rate scheme has considerable benefits and ensures fiscal savings, especially for those who start their business, but it is always necessary to simulate and examine each individual case to determine the real convenience.
Contact us to perform a free simulation or advice.
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