Flat-rate scheme
How the scheme works in detail.
OpenVAT numbers · Choosing the regime
When the flat-rate scheme is really worth it
The flat-rate scheme (regime forfettario) has a low tax rate, and that makes it look like the obvious choice every time. It is not. There are situations in which the ordinary regime leaves more money in your pocket, and you can recognise them with five checks.
01 · How to decide
The comparison is not made on the tax rate
The mistake people start with is comparing the substitute tax of the flat-rate scheme with the ordinary progressive rates. They are two numbers applied to different tax bases, and comparing them directly means nothing.
Under the flat-rate scheme, income is worked out by applying to turnover a profitability coefficient set by law according to your ATECO code (the business activity classification code): your actual costs do not enter the calculation, whatever they are. Under the ordinary regime, income is revenue minus documented costs.
The right comparison is therefore between the flat-rate income and your real income. If your actual costs are lower than the share the coefficient takes off, the flat-rate scheme is giving you a deduction for costs you never had. If they are higher, you are the one making a gift to the State.
The right question is not "how much tax do I pay" but "how much do I have left, net, at the end of the year". It changes the outcome in a far from negligible share of cases.
02 · The checks
Five checks before you choose
None of these decides the matter on its own. Together they tell you, fairly accurately, which side to be on.
The cost test
Add up your actual annual costs and compare them with the share the coefficient allows as a flat amount. If your real costs exceed that share, the flat-rate scheme taxes you on income you do not have.
The deductions test
List the deductions you would use: mortgage, medical expenses, renovations, children. Under the flat-rate scheme, if you have no other ordinary income, you lose them all.
The VAT test
If you need to make significant investments, under the flat-rate scheme the VAT on purchases cannot be recovered and becomes a full cost.
The client test
With private clients, not charging VAT on the invoice is a competitive advantage. With business clients, who recover the VAT, it makes no difference.
The growth test
If you expect to go over the threshold within two or three years, the move to the ordinary regime will come anyway, and it pays to prepare for it rather than have it happen to you.
03 · Favourable profiles
Situations where the flat-rate scheme almost always wins
There are profiles where the sums leave no doubt. They all share the same feature: few costs and no deductions to use.
- Consultants and professionals working from home, with no stock, no staff, and costs limited to equipment and training.
- People who have just started and in the first years can access the reduced rate for new businesses, where the conditions are met.
- People with a main job as an employee and a secondary self-employed activity: personal deductions are absorbed by the employment income and are not lost.
- People who work with private clients and can offer a lower price for the same net takings, since they do not have to charge VAT.
- People with a stable turnover well below the threshold, with no prospect of rapid growth.
04 · Unfavourable profiles
Situations where the flat-rate scheme costs you more
They are less well known, but not rare. The common denominator is the opposite: significant costs or large deductions to use.
| Situation | Why the flat-rate scheme penalises you |
|---|---|
| Businesses that buy a lot of goods | The coefficient allows a share of costs lower than the costs actually incurred |
| People with staff or contractors | The cost of labour does not reduce the tax base in any way |
| People renting commercial premises | Rent is a real, recurring cost that stays outside the calculation |
| People with a first-home mortgage and no other income | The interest produces no deduction at all: the benefit is lost entirely |
| People facing large medical or building expenses | Same mechanism: deductions that cannot be used without ordinary tax to set them against |
| People who need to buy expensive equipment | VAT that cannot be recovered and depreciation that does not count: you bear the full cost |
| People close to the revenue threshold | Going over the higher limit means leaving the scheme immediately, during the year |
The classic case
A craftsman with a rented workshop, materials and one employee.
- Real costs far higher than the share allowed by the coefficient
- VAT on materials purchased that becomes a straight cost
- No deduction for the cost of labour
- On paper the rate is lower, in practice the net result is lower too
05 · When you cannot
Before whether it pays: whether you can join
Some conditions exclude you from the scheme regardless of whether it would pay. They need to be checked first, because they make the rest of the reasoning pointless.
- Going over the revenue threshold in the previous year.
- Employment or pension income above a certain amount received in the previous year.
- A stake in a partnership or professional association held at the same time as the individual business.
- Control of an SRL (Italian limited liability company) carrying on an activity related to the one you carry on individually.
- Working mainly for your current employer or one from the previous two years.
- Spending on employees above the set annual limit.
- Tax residence abroad, except for the cases provided for.
The exclusion that is most often triggered without people noticing is the one linked to the employer: anyone who leaves a company and starts invoicing it as self-employed is excluded from the scheme, and the tax authorities can check this easily.
06 · The long view
Choosing with an eye on the future, not just next year
The choice of regime is not irreversible, but changing it has a cost of adjustment: accounts to set up, VAT to manage, prices to revise with clients. It is worth looking at least three years ahead.
- You leave the flat-rate scheme automatically when a requirement is no longer met: it is not a choice you can keep simply because you want to.
- Going over the threshold beyond the higher limit means leaving immediately, with effect on the current year and VAT to recover on transactions already made.
- Moving to the ordinary regime means revising your price lists, because VAT will appear on the invoice.
- If you aim to grow, you can choose the ordinary regime from the start, so as not to have to change everything at your busiest moment.
- Your social security position follows its own logic: the tax regime does not affect the obligation to pay contributions, but the basis of calculation changes.
Frequently asked
The questions that keep coming up
I have a mortgage. Do I lose the interest deduction under the flat-rate scheme?
Yes, if the flat-rate scheme is your only source of income. The substitute tax allows no deductions, and without any other tax to set them against the benefit drops to zero.
If you also have employment income or rental income taxed in the ordinary way, the deductions are absorbed there and are not lost. It is often the factor that turns the comparison around.
Is the flat-rate scheme a disadvantage with business clients?
Not a disadvantage, but the competitive edge disappears. A business recovers VAT, so it makes no difference to it whether VAT is on the invoice or not: it only looks at the taxable amount.
With private clients, on the other hand, the final price without VAT is lower for the same takings on your side, and that is a real commercial advantage.
Can I move to the ordinary regime and then go back to the flat-rate scheme?
Yes. Opting for the ordinary regime binds you for a minimum period, after which you can return to the flat-rate scheme if you still meet the requirements.
If instead you left because you went over the limits, returning depends on getting back below the threshold, within the time frames set by law.
Can the profitability coefficient be changed?
You do not choose it: it follows from the ATECO code of the activity you actually carry on. Giving yourself a code with a more favourable coefficient than the one that matches your real activity is a risk, not a strategy.
If you carry on activities that fall under different codes, the revenue must be kept separate and each part has its own coefficient applied.
From the blog
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The comparison is made on your figures, not on a general rule
We need your expected turnover, your real costs and the kind of clients you have. With those three pieces of information the answer is a matter of numbers, not opinion.