Anger over changes to VAT rates for self-employed people in new 2025 French budget
Business leaders and politicians warn prices will increase as a result
Up to 250,000 self-employed workers will be affected by the change, according to estimates
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A federation representing many self-employed workers in France has criticised the new 2025 budget for significantly lowering VAT thresholds for those registered as self-employed.
As of January 1, 2025, auto-entrepeneurs benefit from a VAT exemption on turnover up to €37,500 per year for artisans and services, and €85,000 for people selling goods or offering furnished accommodation such as gîtes and chambres d’hôtes.
The new budget however reduces these further to €25,000 across the board unless the rule is censored by the Conseil constitutionnel.
The auto-entrepreneur regime, also known as the micro-entreprise, is a simple form of business set-up, involving lightened formalities and - until now - no need to charge and collect VAT for those with modest turnovers.
It was originally launched in 2009 to encourage people in France to set up small businesses, including for a side income along with other work, but it has undergone several changes since then. The launch campaign featured a smiling red balloon with the wording 'light business set-up! light!'.
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The change will result in up to 250,000 self-employed people having to charge (and pay over) VAT when they were previously exempt from doing so, said the head of a body representing auto-entrepreneurs, Grégoire Leclercq to Agence France Presse.
The move has also been criticised by the far-right Rassemblement National which said it will mean self-employed workers having to charge customers 20% (the rate of VAT) more for services to meet the new cost – an allegation also made by Mr Leclercq, of the Fédération des auto-entrepreneurs.
He also believes the changes will lead to increased fraud, as some self-employed workers “will simply under-declare their turnover and stop at €25,000.”
The far-left LFI is also preparing a proposed law aimed at cancelling the change, LFI MP Eric Coquerel told FranceInfo.
Businesses that charge VAT can offset their own business purchases on which they have paid VAT from the VAT they collect from clients/customers and pay over to the state. However, they typically use an accountant to help with related paperwork, which many auto-entrepreneurs have not needed to do as the system involves fixed expenses allowances.
How will the new system work?
The new thresholds are expected to come into effect from March 1, 2025.
The reduction may be delayed depending on how much workers earn. Self-employed people who earn more than €25,000 but less than €27,500 annually will not pay VAT until January 2026.
However, those who have earnings of over €27,500 will need to start charging VAT immediately from March 1.
VAT declarations for self-employed workers will remain the same.
They can choose from three methods:
A simplified method, where they declare all income by May 3 and then pay the VAT in two installments (July and December)
Monthly payments of VAT
Quarterly payments of VAT
Read more: Explainer: who pays France’s CFE business tax and what exemptions?
Warnings against changing status
In response to the new thresholds, some reports advised self-employed people to move away from auto-entrepreneur status and choose a new status for their business such as SASU (Société par actions simplifiée unipersonnelle) – a simple form of company with a single ‘partner’ – to avoid having to charge VAT.
However, many others have spoken against this, stating that changing away from this status to avoid VAT will also see people lose out on other benefits of the micro-entreprise regime such as simplified accounting rules, set expenses allowances and not paying social security contributions when not receiving income.
Also new declarants who do not opt to declare as an auto-entrepeneur may lose out on Aide à la création ou à la reprise d'une entreprise (ACRE) benefits, which could see them partially or fully exempt from social security charges for the first 12 months.
Read more: Micro-entrepreneur status: Pros and cons of self-employment in France
