Opening a file as an exempt business owner is suitable for those who are starting a business activity on a relatively modest scale and want to operate legally and properly with all state authorities. Although the term "exempt business owner" sounds like a complete exemption, in practice the exemption only applies to VAT, while reporting obligations and taxes to the Income Tax Authority and National Insurance exist as in any other business.
To avoid bureaucratic mistakes that could burden you later, it is important to understand what an exempt business owner is, when it is appropriate, and what exactly the process of opening a file with the three main authorities includes. This guide consolidates all the information in a clear and accessible way, step by step.
What is an exempt business owner and who is it suitable for?
An exempt business owner is an individual who operates an independent business on a relatively low annual turnover, up to a ceiling that is redefined each year. The ceiling refers to business revenues and not profit, so even a business expected to have low profit but high turnover cannot be registered as an exempt business owner.
Choosing this route is mainly suitable for those who provide services or sell products on a limited scale, such as therapists, creative professionals, private tutors, fitness coaches, freelancers starting out, and more. Additionally, working as an employee in parallel does not change the exempt status because the law only examines business income.
On the other hand, there are professionals who cannot register as exempt business owners even if their turnover is below the ceiling. Liberal professions such as lawyers, psychologists, accountants, and doctors must register as licensed business owners regardless of income. Therefore, it is important to check early on whether your field of work allows registration as an exempt business owner.
The main differences between an exempt business owner and a licensed business owner
One fundamental difference defines almost all other differences: an exempt business owner does not charge VAT from their customers. This means they issue a receipt only and not a tax invoice, and the price to the customer is lower because there is no tax addition.
However, on the other hand, they cannot deduct VAT from their business expenses. Any VAT paid on equipment, services, or software for the business is included as part of the expense and only reduces profit. In contrast, a licensed business owner can deduct VAT and reduce their tax liability.
Another important difference is in the reporting area. An exempt business owner submits to VAT only a consolidated annual report once a year, while a licensed business owner reports once a month or every two months. In terms of income tax, an exempt business owner reports only in an annual report, but in cases where there is actual tax liability, it is recommended to make advance payments to avoid interest and linkage.
In other words, an exempt business owner operates in a simpler reporting system, but is still required to comply with tax and national insurance rules like any other business.
Opening an exempt business owner file for VAT
The first step in registration is opening a file with VAT. Here the business status is determined, and a business number is issued, which is the ID number of the business owner. Registration includes filling out a designated form and a brief description of the business activity, estimated future turnover, and location of activity.
The request must be accompanied by basic documents such as an ID card, bank account confirmation, and a lease agreement if necessary. Sometimes the authority also requests documents showing business preparation such as equipment purchases, agreements with suppliers, or proof of professional experience.
The request can be submitted in person at the regional VAT office or online on the Tax Authority website. Digital submission saves time and allows documents to be attached easily. Those represented by an accountant or tax advisor can submit the request through the representatives system. After approval, a temporary registration confirmation is received and later a certificate of exempt business owner status is sent.
Opening a file with the Income Tax Authority as an exempt business owner
After registering with VAT, you must open a file with the Income Tax Authority. This is a step where you declare the beginning of business activity, detail sources of income, and report personal information. Those who work in parallel as an employee should indicate this because the annual calculation may include all sources of income.
In cases of married couples, there is an option to choose which spouse will report and be registered as the file owner, in accordance with the conditions of the Income Tax Ordinance. Spouses living separately are entitled to request separation in reports and submit appropriate affidavits.
If the business owner plans to employ salaried employees, a deductions file must also be opened within the Income Tax Authority. Opening the file allows reporting of salaries, tax withholding at source, and submission of required forms to the authorities. At this stage, professional guidance is sometimes needed to avoid mistakes.
Opening a file with the National Insurance as an exempt business owner
The third and final step in the process is opening a self-employed file with the National Insurance. Here the amount of advance payments and insurance premiums are determined based on estimated income. The definition of whether a person is considered self-employed is determined by working hours per month or by the level of income from the business.
A self-employed person who does not meet one of the conditions will be defined as having non-employment income and their calculation method will be different. A self-employed person who also has a salary as an employee or additional income will be defined as having multiple sources of income and advance payments will be calculated for each source accordingly.
In any case, registration with the National Insurance is a necessary condition for receiving rights such as injury benefits, maternity benefits, and additional allowances. Submission can be done in person, by mail, by fax, or in the personal area on the National Insurance website. After opening the file, payment booklets are received or the option to set up a standing order.
What documents do you need to attach to open an exempt business owner file?
ID Card
A basic document for identifying the business owner and checking their eligibility to register as an exempt business owner.
Bank Account Management Confirmation
An official confirmation from the bank or a cancelled check proving the existence of an active account for business activity.
Lease Agreement or Ownership Document
Required if the business operates from a physical location. The document proves the location of activity and ownership of use.
Documents Evidencing the Start of Activity
Such as equipment purchases, agreements with suppliers or customers, and professional certificates if necessary.
Opening a file as an exempt business owner is an opportunity to start the business in an organized and relatively easy way, but it is still a process that requires accuracy, complete declarations, and compliance with rules with three different authorities. Correct registration from the start prevents unnecessary fines, debts, and interest in the future. If you want to start your business journey without worries, this is exactly the time to get help from experts who know all the procedures and will carry out the process for you efficiently and quickly.
Contact us to open an exempt business owner file for you
At CPA Digital we offer a complete service for opening files with all authorities, personal guidance throughout the process, and a detailed guide for proper management of an exempt business owner including a list of recognized expenses that will help you pay less tax.
For any question, guidance, or opening a file in full, we are here for you, always available by phone, WhatsApp, and on the website.