A Small Business Owner into Self-employment

There is hardly any other term from the ABC of startups that is so often misunderstood as with small business owners. There is often confusion, especially in connection with small businesses. However, it is clearly regulated whether or not you can claim the status of small business.

But is it worth starting as a small business owner and what things do small business owners need to consider? To do this, we go among other things on the invoice, bookkeeping and registration for small business owners.

When are you a small business owner?

When you can use the small business status for yourself is regulated in paragraph 19 of the Sales Tax Act (UStG) under the title Taxation of small business owners. Because the small business status is all about sales tax. A small business owner did not have this on the invoice identify and pay to the tax office if

The turnover in the current financial year will probably not exceed the threshold of 50,000 euros.

This is known as the small business rule. From this regulation, there are then separate requirements for small business owners on the subject of sales tax, which we will examine in more detail below in the section Accounting for small business owners. Since there is no turnover for the previous year for founders, the mark of 22,000 euros applies to the first financial year with regard to the small business regulation.

For many founders and the self-employed, the small business regulation has hardly any practical relevance, as an annual turnover of 22,000 euros should quickly be exceeded so that self-employment makes economic sense at all. For people who are initially self-employed as a part-time job, however, the status of small business owner is worth considering.

Small business regulation Changes since January 1, 2020

The sales limit for the previous year was raised from 17,500 euros to 22,000 euros on January 1, 2020. This means a relief for the self-employed with low incomes, for whom the small business regulation has so far been worthwhile. The change in the law has only been in effect since January 1, 2020, but has also had an impact on the previous year By referring the sales limit to the previous year, small businesses who achieved sales of over EUR 17,500 (up to EUR 22,000) in 2019 can continue to use the small business regulation in 2020 use.

What legal form is possible for small business owners?

The small business status has no influence on the choice of legal form. Conversely, this means that you can use any legal form when starting out as a small business owner. You can determine which legal form suits your establishment in our legal form test.

The term small business owner is often equated or confused with the term small business. To be clear the two terms have nothing to do with each other. After all, the term small business can only be found in the Value Added Tax Act and the term small business is derived from the Commercial Code. Small business refers to all businesses that do not have to be entered in the commercial register - regardless of the turnover limits applicable to small businesses.

In this respect, the small business status has no influence on the registration of one's own business. If, for example, you are not setting up a general partnership or a corporation, we have put together the offices and authorities that you need to go to when you start a small business.

Freelancers who are not referred to as traders can also claim the status of small business owners. When registering, freelancers do not have to register with the trade office, but directly with the tax office the freelance activity.

Register the status of small business with the tax office

If you as a founder want to use the status of small business for yourself, please inform the tax office. After you have registered with the trade office, you will receive the tax registration questionnaire from the tax office. This comprises several pages, which is why it is often advisable to fill it out with your tax advisor. However, the tax office also offers a PDF file that explains the form to you.

In addition to numerous details about your company, you will also be asked to provide budget figures for business activities. In this context, you then have the choice of ticking under point 7.3 to decide whether you want to make use of the small business regulation or not - of course only if the sales limits for small business owners are complied with accordingly.

Bookkeeping pros and cons for small business owners

As already mentioned, the status of small business has a significant influence on sales tax and thus the accounting