With the possible arrival of the VAT exemption for small businesses in Spain, many professionals in the sector are asking themselves the same question:
Am I really interested in stopping paying VAT in my hairdresser or barbershop?
Although at first glance it seems like a clear advantage, the reality is that it is not always the best option for all businesses.
In this article we explain the 5 fundamental keys to know if it is convenient for you to take advantage of this new VAT regime.
1. The type of customer: individual or company
One of the most important factors in deciding if you’re interested in this change is knowing who you’re selling your services to.
If you work primarily with private clients, the VAT exemption can be very beneficial. For example, if you charge €50 for a service, that amount would become entirely for you, as you wouldn’t have to set aside the 21% corresponding to VAT. The client would still pay the same, but your margin would be higher.
However, if you work with companies, the situation changes. Companies can deduct VAT, so if you stop applying it, your service becomes a higher cost for them. This can lead to you being asked to adjust prices to keep the same real cost.
In short, if your customer is an individual, you win; if it is a company, you will have to analyze your prices well.
2. Large investments: beware of VAT that you will not be able to deduct
VAT doesn’t just affect what you charge, but also what you pay.
If you take advantage of the exempt regime, you lose the right to deduct VAT from your purchases, and this can have a significant impact if you are thinking of making a large investment.
For example, if you open a new centre or carry out a major renovation with an expense of €120,000, the associated VAT can exceed €25,000. In the general regime, that money could be recovered or compensated, but in the exempt regime it becomes a direct cost.
Therefore, if you plan to invest in machinery, renovations or equipment, it may not be the best time to change your regime.
3. Your day-to-day expenses
Beyond large investments, it is important to analyze your usual expenses.
Rent, supplies, products, materials… all these costs include VAT. In the general regime, you can deduct that VAT, but if you switch to the exempt regime, it becomes an additional expense.
This means that even if you stop paying VAT, you also stop paying VAT on your purchases.
That is why it is essential to do the numbers and assess whether it is more worthwhile for you to stop paying VAT or to continue deducting it in your expenses.
4. Less bureaucracy: a key advantage
It’s not all about money. Time and simplicity count, too.
One of the great benefits of VAT exemption is the reduction of the administrative burden. This involves no longer filing quarterly forms such as the 303, eliminating the annual summary and simplifying accounting records.
For many freelancers, especially those who manage their business without external help, this means significant savings in time, management and worries.
In this sense, the exempt regime can be a great advantage if you are looking to simplify the management of your business.
5. The billing limit: it’s not for everyone
This new model does not apply to all businesses.
The regulations set an annual turnover limit, which is usually around €85,000. If you exceed that threshold, you will automatically have to return to the general regime.
This makes the VAT exemption especially interesting for small businesses, freelancers or professionals who are just starting out.
If your business is growing rapidly, it’s important to note that this regime may be temporary.
So, is it worth not paying VAT?
The answer is clear: it depends on your situation.
The VAT exemption can be very beneficial if you work with private clients, have few expenses and are looking to simplify your management. However, it may not be recommended if you make large investments, have a lot of costs or work with companies.
The most important thing is to analyze your specific case and understand how this change will affect your profitability.
Prepare for change with a flexible system
Regardless of whether you decide to take advantage or not, the important thing is to be prepared.
Tax changes can come at any time, and adapting quickly will make all the difference.
Having a management system that allows you to adjust your billing, control your income and adapt to new regulations without complications will be key to making the best decision at all times.
At Wilapp we help you adapt to the new VAT model
At Wilapp we know that tax changes generate doubts and can directly affect your business.
That is why we have developed management software prepared to adapt to both the general regime and the exempt regime, allowing you to easily change your way of invoicing when you need to.
This way you can focus on what’s important: growing your business, without worrying about the technical part.
