Frequently asked questions about the Small Businesses Scheme
- Maurine La Verge
- Q and A
- 25 Aug 2023
- Edited 4 May 2023
- 6 min
- Rules and laws
Does the Small Businesses Scheme (Kleineondernemersregeling, KOR) benefit me and my client? And what is the best time to apply? Using the KOR seems attractive to many business owners. But if you are planning to make large investments, for example, the KOR is probably not a wise choice, because you cannot reclaim VAT. Read the most frequently asked questions in this article.
- Is using the Small Businesses Scheme financially advantageous?
- Can I offer my services at lower rates to consumers if I use the Small Businesses Scheme?
- Can I make more turnover per assignment if I use the Small Businesses Scheme?
- Can I stop the Small Businesses Scheme at any time?
- Is it true that I do not have to keep records if I use the Small Businesses Scheme?
- Is using the Small Businesses Scheme a wise choice?
- How do I calculate whether the Small Businesses Scheme brings financial benefits?
- I have to deal with turnover taxed both with and without VAT. Can I apply for the Small Businesses Scheme?
- When is the best time to apply for the Small Businesses Scheme?
The Small Businesses Scheme is an exemption from VAT. VAT is also known as turnover tax. The Small Business Scheme is not related to income tax. You qualify for the VAT exemption if you have a turnover of less than €20,000 per year. You may participate in the scheme no matter what legal your business has. If you participate in the KOR, you do not charge VAT on your supplied products or services. Nor can you reclaim the VAT you have paid on products or services you have purchased. Want to know if the KOR is for you? The Small Businesses Scheme checklist video explains the scheme in seven steps.
Video: Small Businesses Scheme (KOR) checklist
No. VAT is budget-neutral for most business owners. Business owners receive the VAT they pay to the Tax Administration, and they reclaim the VAT they pay for supplies, travel, etc. So, VAT has no financial impact on the income of business owners. And the KOR does not benefit them financially. In fact, the KOR can cost business owners money: they cannot reclaim VAT on their business purchases.
If you use the Small Businesses Scheme, you can choose to offer your services to consumers at a lower rate than you would if you did charge them VAT. For example, the 'bare' hourly rate without the VAT.
Suppose your hourly rate is €50, excluding VAT. If you include the 21% VAT, your hourly rate will be €60.50. Because you use the Small Businesses Scheme, you do not calculate the VAT. Your customers pay €50 instead of €60.50. This seems like a good idea, but be careful. If it turns out you will make more than €20,000 in turnover per year within three years, you will still have to charge VAT. In that case, your customer is going to have to pay more. Or you will have to settle for less turnover, and keep charging the same rate. So before you decide to charge your bare hourly rate, try to calculate: will your turnover remain under the limit of €20,000?
Since you cannot reclaim VAT if you are participating in the KOR, your purchase and investment costs will be higher. Calculate your expected income and expenses before deciding whether to use the Small Businesses Scheme.
When you provide products or services to consumers, you can make more revenue per order. If you supply products or services to business owners, this is also possible, but chances are they will find you too expensive. Suppose your hourly rate is €50 excluding VAT. If you include the 21% VAT, your hourly rate will be €60.50. Because you use the Small Businesses Scheme, you do not calculate the VAT. Now you may be thinking: in that case I can charge €60.50 an hour and pocket the 'VAT amount', so I will earn more. That is true, but in that case the cost to your customer (a business owner) increases. This is because they cannot reclaim VAT because there is no VAT on the invoice.
If you pocket the 'VAT amount' anyway, you make more money, but this does not directly mean you make more profit. If you make use of the KOR, your costs and investments are likely to increase because you do not reclaim VAT.
If you make use of the Small Businesses Scheme, you do so for 3 years. Unless you exceed the turnover limit of €20,000 per year in the interim, in which case you have to cancel your participation in the Small Businesses Scheme (in Dutch). You have to report this yourself. But if your circumstances change in the 3 years you use the Small Businesses Scheme, and you would like to leave the scheme, you cannot reverse the choice. If your laptop suddenly breaks down and you have to buy a new one, then you may not reclaim the VAT amount. Say the new laptop costs €900 including VAT, then it is not possible to reclaim €156.20 (21% VAT).
After 3 years of participating in the KOR, you can decide to stop using the exemption. You can then opt out of the Small Businesses Scheme (in Dutch). If you do nothing, the Small Businesses Scheme simply continues.
Partly. Using the Small Businesses Scheme means that you do not keep VAT records or file VAT returns. Business owners who do not use the Small Businesses Scheme file quarterly VAT returns. Despite the exemption from VAT returns, your records need to be in order. You need the records to monitor the €20,000 limit and file income tax returns.
Whether using the Small Businesses Scheme brings benefits depends on your situation. The Small Businesses Scheme is probably a less good choice if you mainly work for companies and incur a lot of expenses in the coming years. Also, if you recently made large investments and got VAT back for this, participating in the Small Businesses Scheme may be unwise at this time. In that case, you have to revise the VAT deduction (in Dutch) and pay back all or part of the VAT. Please note that the revision period for VAT deduction can be as long as 5 years (in case of a company car, for example).
The Small Businesses Scheme is suitable if you mainly work for private customers or companies with a VAT exemption. In that case, you need to be sure that you have no more than €20,000 turnover per year for the next few years, are not going to make any major investments and that participation will bring financial benefits.
To determine whether the Small Businesses Scheme provides financial benefits, make 2 calculations that you compare. In the first calculation, you estimate the expected turnover and costs including VAT. The second calculation is almost the same but then you calculate turnover and costs excluding VAT. In the final calculation, you determine whether to increase your rates to compensate for the higher costs you are likely to face because you do not reclaim VAT. Take into account any review of VAT deductions from previous investments. Unsure whether the Small Businesses Scheme is of interest to you, or need help with the calculation? Enlist the help of a financial adviser.
I have to deal with turnover taxed both with and without VAT. Can I apply for the Small Businesses Scheme?
You can also apply for the Small Businesses Scheme if you have turnover that is taxed both with and without VAT. For calculating the turnover limit of €20,000, only turnover taxed with VAT applies. For example, if you have exempt activities in healthcare or education and your other business activity is an online shop whose turnover is not exempt, the Dutch tax authorities will only look at the turnover of the online shop. If you are applying for the Small Businesses Scheme for a new activity within your company, also report this to KVK.
You decide when you want to make use of the Small Businesses Scheme. When it is best for you to apply depends on your situation. You can apply for the Small Businesses Scheme if you are a business owner and have a VAT identification number. The application form for the Small Businesses Scheme (in Dutch) should be sent to the Belastingdienst. This form must be received no later than 4 weeks before the period covered by the return – that is, the quarter in which you want to start the Small Businesses Scheme.