Read
Language
.webp)
You have just taken the oath, you do not know if you need to have an accountant, you are neither a URSSAF specialist, nor a VAT specialist and you are wondering if you can benefit from the VAT exemption for lawyers: the answers to your questions are here!
As a lawyer, you provide services that make you a “taxable person” for VAT.
This means that, in principle, you should charge VAT on the services you charge to your customers (subject to the applicable rules of territoriality). Correspondingly, you can deduct the VAT you incur on expenses incurred in connection with your activity.
A simple example to illustrate a basic VAT mechanism:
When you bill one of your French private customers for a consultation of €1,000 excluding tax, you will apply VAT up to 20% on your price excluding VAT, i.e. an amount of €200. This amount will be paid by your customer who will pay €1,200 including VAT. You will then have to return this so-called “collected” VAT to the tax authority.
At the same time, if you buy your avocado dress for €800 excluding tax, you also pay 20% VAT on the excluding tax price, i.e. €160. This VAT will be “deductible”.
When you prepare your VAT return, the deductible VAT will be deducted from the VAT collected, so you will pay 200-160=40 € to the Treasury.
With the VAT exemption... Forget all that!
The VAT exemption is a optional mechanism allowing you to:
Using the same example, with the VAT exemption, you charge your client for €1,000 without VAT and you buy your lawyer dress for €960 including VAT without being able to deduct the VAT you have paid.
You have understood the principle but you still do not know if it is in your interest to benefit from the VAT exemption?
So, let's get to the heart of the matter!
The first benefit of the franchise is declarative. By opting for the franchise, you will not need to file VAT returns.
In practice, the filing of the VAT return can be managed by your accountant (If you have one) or by yourself (In this case, you must keep a minimum of brief accounts and ensure that your return is filed on time or you will be subject to penalties.).
By opting for VAT exemption, there is no need to keep your sales receipts, and no need to file a VAT return.
For those who are afflicted with administrative phobia, this argument alone may suffice!
You have an interest in opting for VAT exemption if you mainly or exclusively bill private customers. Indeed, these customers do not recover VAT on your consultations (unlike professional customers).
As you will have understood, invoicing VAT to individual customers means increasing the cost of its service for the customer. With the franchise you can:
The franchise thus makes you more competitive compared to your colleagues who are required to apply VAT.
Exemption from VAT for a young lawyer who plans to have a large number of private clients (criminal law, family law, etc.) can be a competitive advantage that must be closely analyzed!
The major disadvantage of the franchise is not being able to deduct the VAT you bear on your expenses incurred in connection with your activity.
You will therefore not be able to deduct VAT on your operating expenses (lawyer's dress, office equipment, commercial lease if applicable, restaurant expenses, etc.).
It is therefore necessary to determine whether you expect to incur costs in connection with your business in order to measure the financial impact of the VAT exemption.
The VAT exemption loses its interest if you bill your services only to professional customers subject to VAT who can deduct the VAT you charge them.
In practice, if you sign a collaboration contract and you do not expect to create a personal clientele composed of individuals, the VAT exemption is not in your interest.
To benefit from the franchise, you must respect turnover thresholds (see below). If these thresholds are exceeded, you lose the benefit of the deductible (either on January 1 of the following year or on the 1st day of the month in which the threshold was exceeded).
If you benefit from the franchise, it is therefore necessary to monitor your turnover monthly to ensure that you do not exceed the threshold! Quite a blow to those who thought that benefiting from the franchise would allow them to never have to worry about their VAT issues. It's just the opposite!
You will have understood it: Exemption from VAT should mainly be considered for lawyers who mainly bill private clients.
Just because you receive a small retrocession amount does not mean you have an interest in taking advantage of the deductible. If you are a collaborating lawyer receiving €4,000 in retrocession, by benefiting from the VAT exemption you prevent yourself from deducting the VAT borne on your expenses. However, this can represent a significant amount over the year.
Don't opt for VAT exemption for the wrong reasons: ask yourself the right questions!
In practice, it seems to us that the actual regime (a VAT return filed every month) does not present any particular difficulties in its implementation. This regime allows you to pay and deduct your VAT for each past month. Whether you prepare your VAT return alone or call on an accountant, this solution should be preferred from the start of your activity.
If you want to go further, you will find below the thresholds to respect to benefit from the VAT exemption.
To benefit from the VAT exemption, you must not exceed certain turnover thresholds both for your so-called “regulated” activity and for your “non-regulated” activities.
The regulated activity of a lawyer corresponds to your consulting activity, with the exception of the amounts received in the context of non-regulated activity, which are listed in article 293B of the FTC (see below).
To benefit from the VAT exemption, you must not have generated a turnover of more than 44,500€ excluding VAT in N-1.
Attention: this threshold must be pro-rated according to the number of days during which this CA was generated!
If you take the oath on October 1 and receive a fee of €18,000 between October 1 and December 31, then the threshold of 44,500 excluding taxes would be exceeded for this year. Indeed, by pro-ratifying this amount over a full year, it would have generated a total turnover of around 72k.
The threshold of €54,700 applies per fiscal year, it is not pro-rated.
Exceeding the threshold of 56400 during the current year requires you to subject to VAT transactions carried out as early as the 1st day of the month in which the threshold was exceeded.
If invoices were issued without VAT during the month in which the exemption threshold was exceeded, these transactions must be the subject of corrective invoices (if you were required to issue them) and be subject to VAT. Attention: if you do not regularize invoices issued without VAT even though the threshold had been exceeded, this may be a source of adjustment in the event of a tax audit.
It is therefore recommended to regularly monitor your activity to anticipate exceeding the threshold and to charge VAT from the first day of the month in which you expect to exceed the threshold.
As soon as you notice that the threshold has been exceeded, you should inform your tax office so that this update is taken into account on your online space and so that you file VAT returns.
By “non-regulated activities”, the administration refers to the following activities:
With regard to the turnover generated as part of these activities, there are also two thresholds that must be taken into account.
If this threshold is exceeded during the year, you will be liable for VAT as of January 1 of the following year.
If this threshold is exceeded during the current year, you lose the benefit of the deductible.
Attention: in the event of an option or of exceeding the threshold for the regulated activity, the threshold for the non-regulated activity is no longer applicable. On the other hand, if the threshold for the non-regulated activity is exceeded, you can keep the benefit of the franchise for your regulated activity.
Did you get it? Let's take the example of Vincent and Randa who may be in your situation!
Vincent, was sworn in on November 1 and ticked the “basic franchise” box on his CFE form... What is the situation in practice?
Vincent works for a firm that pays him a retrocession of fees in the amount of €5,000 per month. He will therefore receive 10,000€ for this year between November and December. He is therefore below the threshold of €54,700 over the year, there is no risk that he will lose the benefit of the franchise this year.
On the other hand, Vincent will receive a retrocession of €10,000 over a period of 61 days (from November 1 to December 31). This corresponds to a total amount of 59,836€ over 365 days.
Consequently, Vincent will no longer be able to benefit from the VAT exemption on 1 January of the following year because the amount received in N-1 is, after a pro ratization of €59,836, higher than the threshold of €44,500. He will have to contact his tax office in order to switch to reality as of January 1.
Randa was sworn in on 1 January, she applied the VAT exemption from the first day of her activity and received fees for a total amount of €43,000 over this period. It therefore fell below the thresholds of €44,500 during its first fiscal year and continued to benefit from VAT exemption the following year.
As of November 1, Randa has already received €54,000. It will exceed the threshold of €54,700 during the month of December. She must therefore contact her tax office now to ask to switch to reality. In addition, it must ensure that it charges VAT from the first day of December. She will no longer be able to benefit from the franchise as of this date.
Are you a lawyer and do you have questions about VAT for yourself or for your clients? Do not hesitate to contact us!
%20(1).webp)
Partner
%20(1).webp)
Partner
Discover the latest news on indirect taxation and the firm.
