How can one distinguish whether a self-employed activity is carried out regularly? If the service is customary, it necessarily requires opening a VAT number to exercise the action.
I decided to create this article dedicated to a service from a tax point of view because there is too much fake news about it, primarily the threshold of € 5000.
In particular, I want to focus in this analysis on the chronic nature of self-employment services.
In particular, this article may be of particular interest to those who carry out activities of Occasional Self-Employment. In fact, in these cases, the activity provider wonders if and when required to open a VAT.
What I want to premise is that there is no one-size-fits-all answer. Instead, each situation must be analyzed in detail with an experienced accountant.
However, in this contribution, I want to give you a series of valuable indications to understand when you are carrying out a professional activity habitually and continuously. Activity that presupposes the exercise with a VAT number.
An activity as a self-employed person is in itself an activity of an intellectual nature. An exercise in which the philosophical aspect of the training prevails over the organization and means used to carry it out.
To give a simple example, a computer consultant performing a course related to software is performing a professional activity. His intellect overrides all other aspects of the performance.
On the contrary, if the same consultant creates a website and advertises it on portals for its sale, he carries out entrepreneurial activity. In this case, the organization and the means used to prevail over the intellectual aspect.
Understanding the difference between a self-employed activity and an entrepreneurial one is very important from a tax perspective. Subjects in a non-professional form can also carry out professional activities. At the same time, entrepreneurial activities must always be carried out professionally. So with VAT and all tax obligations, administrative and social security consequential and mandatory.
Below I want to look at self-employment activities to understand when they can be carried out in a non-professional manner.
Regularity of Self-Employment Services
Having said this, it is necessary to analyze when a self-employed activity can be carried out in a non-professional way, therefore without a VAT number.
In this regard, it is helpful to distinguish between those who provide services because they are members of professional and business registers, lists, roles, or registers in general, and those who are not.
In the first case, it is logical to assume that there is always the presence of habitual professional activity for those who are members of professional associations.
An occupational activity is always usual when, jointly, and irrespective of the frequency of the services:
- The self-employed person shall be entered in a register, list, roll, or register;
- The self-employed person shall carry out operations, irrespective of their number and frequency, within the scope of his/her activity.
With these requirements, a professional operates professionally by definition. Therefore, it must use with a VAT number.
On the other hand, the professional, even if enrolled in registers or lists, carry out a professional activity outside his usual activity in completely different areas. Therefore, he can take advantage of the discipline concerning the performance of Occasional Self-Employment.
Registration with a professional body, list, roll, or register
The registration of the professional in a record, list, roll, or log is a prerequisite for the exercise of the professional activity.
As mentioned above, a professional registered with a professional association can only exercise his activity professionally, only with a VAT number.
The opening of the VAT number is an indispensable element for all those professionals such as:
For these individuals, the Professional Register is essential to exercise their activity.
In addition to registration in a register, it is crucial to verify the professional’s program of activity as perceived by several elements, such as, for example, the initiation of business contacts, the acquisition of the availability of premises.
In essence, being entered in a register or list obliges the professional to open a VAT number. This, however, is still a symptomatic element that, far from constituting a known fact on which to base a presumption of habitual activity, could represent serious and accurate evidence under Article 2729 of the Civil Code.
Usual activity not dictated by the number of services or the number of clients
To establish the chronic nature of the professional service, it is certainly not intended to place too much value on elements of a formal nature.
I mean that the performance of even a single operation, in the presence of the registrations mentioned above, could integrate the exercise of a habitual economic activity.
This happens in all those cases in which the subject demonstrates a programmatic way to want to exercise a professional activity, perhaps because he has put in place a minimum of acts preparatory to the conduct of a self-organized and habitual action.
To be as concrete as possible, think of the case of a young lawyer who has opened his own office and in the first year had only one client. In this case, even with only one performance, the activity is still usual for the preparatory acts, that is, the office in which he works and prepares to receive future clients.
The taxpayer, however, may also be able to prove otherwise. Such evidence must be concrete. It should not simply be based on the limited number of transactions carried out. In a case in point, the taxpayer must prove that he has not carried out any acts leading to the preparation of habitual activity as a self-employed person.
Only in this case is the service qualified by the person concerned as occasional self-employment. Again, however, great care must be taken. This provision may be the only one that cannot be concealed amidst many “black” operations.
For this reason, the Inland Revenue carries out this type of control with great care, and often with the help of financial investigations, to unearth any professionals who operate outside the total legality.
Exceptions to habitual status for certain professional bodies
Before we move on to the analysis of chronic professional service, I want to point you to some exceptions.
Some professional associations provide that the professional can exercise the activity without the obligation of VAT. A classic case is that of journalists. If they do not collaborate permanently as professionals with a newspaper, these professionals can operate with Occasional Performance.
This option is expressly provided for by the Order of journalists.
Performance of other activities for which there is no enrolment in a professional body
However, when we are in the presence of activities for which it is not prescribed the obligation to enroll in professional associations, things change.
In these cases, determining in which cases the self-employed activity is or is not habitual is problematic.
What I mean is that, to date, there are no qualitative rules or quantitative parameters from a tax point of view to identify a regular activity from an occasional one.
In our tax system, the only parameter that currently exists is the contribution parameter. This parameter, however, does not concern the fiscal aspect, therefore, the obligation or not to have a VAT number.
This parameter is valid exclusively to establish whether the occasional self-employed worker must enroll in the INPS Gestione Separata.
What I mean is that a person might make a single service worth more than € 5,000 without being required to register for VAT. However, it could also happen the other way around, i.e., that a person carries out several regular services for an annual amount of less than € 5,000. In this case, there would be an obligation to operate professionally, even if there are no social security obligations.
Therefore, the clarifications made so far by the tax authorities remain valid. However, starting from that, reiterated on several occasions, that, since the distinction between chronic and occasional is uncertain, the assessment of one or the other elements must be made case by case based on concrete issues considered from time to time. In other words, there are no a priori solutions.
Custom and professionalism
The term habitual in the context of the tax rules are exclusively coupled with the term professionalism regardless of organization.
The latter is relevant to establish whether the customary provision of services, not falling under Article 2195 of the Civil Code and, therefore, intrinsically autonomous on a civil level, are business or self-employment for tax purposes.
Habitually, combined with professionalism, the element of habitually would define an activity characterised by repetitiveness, regularity, stability, and systematic behavior.
Of course, the chronic nature of the self-employed activity, which does not mean exclusivity, is perfectly compatible with the parallel exercise of an activity as an employee or as a coordinated and continuous collaboration or as a partner in a company in general.
This is because even a self-employed activity carried out for a few hours a day or occasion and, at the most, even for just one client, but with constancy over time, thus giving the idea of representing for the service provider his ordinary way of exercising his self-employment activity, and even without a particular organization and even if not very well remunerated, fulfills the subjective prerequisite for opening a VAT number, due to the presence of habitual.
Business as usual and VAT number for professionals: conclusions
In this article, I’ve tried to give you some useful pointers on whether and when you’re running a regular business.
If you find yourself in this situation, you can do nothing but operate with a VAT number professionally.
Otherwise, you can continue using Occasional Self-Employment Benefits.
Whatever situation you find yourself in, it is critically important that you consult with an experienced Certified Public Accountant. Remember that every case is different, and you can never generalize.