VAT Threshold Relief 2024 - How Does Threshold Relief Work?

Written by: OP Light Entrepreneur Team

Private business owners with a 12-month turnover of less than 30,000 euros are eligible for VAT threshold relief. This relief mechanism is specifically designed to aid small-scale entrepreneurs by providing them with a reduction in the VAT payable.

If the annual turnover is less than 30,000 euros, entrepreneurs can reclaim a portion of the VAT paid. For those with a turnover of less than 15,000 euros, the VAT-liable business owner can reclaim all the VAT paid. However, if the turnover exceeds 30,000 euros, the business is not eligible for VAT threshold relief.

OP Light Entrepreneur automatically calculates and applies the lower limit relief for its users when their turnover qualifies. No additional actions are required from the user.

How is the calculation of lower limit relief done for a complete financial year of 12 months?

If your business turnover is up to 15,000 euros, you can get a full refund on the VAT payable. However, when your turnover exceeds this amount, the lower limit relief is calculated using a specific formula applicable to a full 12-month financial year:
Relief = VAT -
(revenue - 15 000) * VAT
/
15 000

VAT = amount of VAT, Revenue = turnover excl. VAT

Discover how to find your personal VAT deductions and the total amount of VAT threshold relief by signing into your user account. Simply select "VAT relief calculator" from the navigation menu.

Example of Calculating VAT Relief in 2024

Consider this scenario: Valtteri, a professional photographer, has sold his services and photographs for a total of €20,000 VAT 0% during a 12-month fiscal year. With a turnover of €20,000, Valtteri qualifies for threshold relief. He has invoiced his services at the general VAT rate of 24%, accumulating a total VAT of €4,800 (0.24 * €20,000).

As Valtteri's turnover is below the €30,000 limit, he is eligible for threshold relief. The calculation of Valtteri's threshold relief for the year 2023 is as follows:

4 800 -
(20 000 - 15 000) * 4 800
/
15 000
= 3,200 euros

and Valtteri only has to account for VAT of €4,800 - €3,200 = €1,600. So, he gets back €3,200 in paid VAT. OP Light Entrepreneur automatically pays the lower limit relief to its users.

Should turnover be optimised to the €15,000 limit?

In short, no. It is economically most advantageous to invoice, even if the turnover is over €15,000 per year. Let's illustrate this with an example, why turnover should not be artificially left at the €15,000 limit. The relief thus works on a sliding scale up to a turnover of €30,000, so there is no reason to limit invoicing to a certain euro amount.

When invoicing 16,000 € + VAT 24%, you get 984 € more than by invoicing only 15,000 € + VAT 24%
As an example, the turnover for a part-time consultant for the year 2024 is 15,000 euros. However, the consultant also gets an additional job worth 1000 € + VAT 24%, which he also invoices for the year 2024, the consultant's turnover becomes 16,000 euros and he is entitled to almost full threshold relief.

The VAT threshold relief received by the consultant on a turnover of 16,000 euros is 3,840 - (16,000 - 15,000) * 3,840 / 15,000 = 3,584 €
So, out of the 3,840 € VAT he paid, the consultant gets 3,584 € back, the part to be paid to the Tax Administration from the whole 3,840 € pot is 256 €. The entrepreneur's result is therefore ultimately 16,000 € + 3584 € = 19,584 €. This does not take into account expenses or the entrepreneur's own tax rate.

If the consultant were to leave the extra job undone, with a turnover of 15,000 euros, he gets all the 3,600 € VAT pot he paid back using the formula. The entrepreneur's result in this case is 15,000 € + 3,600 € = 18600 €.

Thanks to the extra job done by the consultant, the entrepreneur ends up with 19584 € - 18600 € = 984 € more than by leaving the turnover at 15,000 euros. So, it definitely pays for the consultant to do the extra job, as every euro sold means that more is left over, even though the amount of relief decreases in proportion.

VAT threshold relief is taxable income

The relief is considered income for the entrepreneur, which is taxed in the same way as other OP Light Entrepreneur -income.

For example, if you receive VAT threshold relief based on your 2024 sales, it is paid and considered taxable income for the year 2025. OP Light Entrepreneur takes care of reporting this income on the tax return for its customers automatically.

How is threshold relief calculated for a financial year less than 12 months long?

If your company's financial year is shorter than 12 months, the turnover for the financial year is adjusted to correspond to 12 months' turnover.

This is done by multiplying the turnover that entitles to relief by the number 12 and dividing the resulting number by the number of full months of the financial year. Full calendar months are counted as months.

Note. You can check the length of your financial year in the "Accounting" section of the service.

For example, if you started your business on 15.7.2023, the length of your first financial year is 15.7 - 31.12.2023. You will have a total of five full months from this period.

If you have sold 15,000 € + VAT 24% during the financial year, the turnover for the financial year is adjusted in this situation to correspond to 12 months' turnover as follows: (15,000€ * 12 months) / 5 months = 36,000 €. Since the adjusted turnover exceeds the 30,000€ limit, your company is not entitled to VAT threshold relief.

In what situation is an entrepreneur not entitled to threshold relief?

There are situations where VAT threshold relief is not granted:

  • Turnover is over 30,000 € during the calendar year or if the financial year is shorter, the adjusted turnover exceeds this limit
  • The payable part of the VAT is negative, i.e. the VAT on purchases is greater than the VAT accrued from sales.
  • The entrepreneur is a foreign private trader who does not have a permanent address or fixed place of business in Finland.

OP Light Entrepreneur takes care of the threshold relief for you

OP Light Entrepreneur does automatic accounting based on your sales and deductions added to the service and compiles the information for the annual tax return from it. We also automatically apply for threshold relief for you.

Once the tax returns have been submitted to the Tax Administration, you can find your company's tax returns in the MyTax service.

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