Accounting regimes: let's have some clarity

Running a business is not easy, especially when it comes to fulfilling administrative obligations. Indeed, not only can corporate bureaucracy be complex and verbose, to say the least, but it can also prove insidious. If its mechanisms are not properly understood, it can easily lead to the company incurring additional and unnecessary expenses.

That is why understanding and, consequently, choosing the right accounting regime can be decisive steps for proper business management. In this article, we will provide you with the necessary knowledge to orient yourself in the field of accounting regimes, so that you can correctly choose the right one for your business! Ready? Go!

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What is an accounting regime?

Definition

Accounting regimes, also referred to as tax regimes, correspond to the set of rules and instructions that every business is required to comply with for the proper management of its accounts.

In a broad sense, they can also refer to tax-relevant documentation, i.e. documents relating to business transactions, such as balance sheets and tax returns.

In summary, accounting regimes represent the set of:

1. Mandatory documents,

2. Formalities to be observed

for the company to be compliant with the tax authorities and in line with the Civil Code.

At the end of the day, accounting regimes document the use of the financial resources of any business and thus provide an indication of its development.

The scope and content of accounting regimes are governed by specific regulations and depend on the legal nature of the taxpayer.

Existing regulations

For any entity engaged in any kind of economic activity, there is an obligation to comply with an accounting regime. In concrete terms, this means that every company must adopt an accounting regime in order to record all administrative, economic and financial operations of its activity.

Any movement of capital or any money transaction that results in income or expenditure for the business must therefore be declared according to certain rules contained in the accounting regimes.

The various tax regimes propose different rules to be followed and different documents to be drawn up.

The choice of a particular accounting regime is linked to the legal nature of the taxpayer and the size of its business. This means that, depending on the type of company and the amount of its turnover, it will be appropriate to choose a particular tax regime.

Once the need to introduce a business regime in one's company has been clarified, it is necessary to specify which tax regimes can be used in 2021.

Currently, there are three existing statutory accounting regimes:

1. Flat-rate or facilitated accounting regime;

2. Simplified accounting regime;

3. Ordinary accounting regime.

Attention. With the entry into force of the flat-rate accounting regime in 2015, all previously active facilitated regimes were repealed, namely:

1. The regime of new productive initiatives;

2. The minimal regime;

3. The regime for the 'ex-minimum'.

In a nutshell, the 'forfettario' regime is, as of 2015, the only facilitated regime applicable.

Accounting regimes: an overview

Every entrepreneur must choose the tax regime appropriate to his or her type of activity. In particular, the following categories of economic entities are recognised:

- Sole proprietorships,

- Professionals,

- Companies.

In order to be able to adopt a certain accounting regime, the relevant economic activity must meet certain prerequisites, which differ according to the regime under consideration.

Let us take a quick look at the characteristic parameters of each regime.

Flat-rate accounting regime

Requirements

All companies that meet the following characteristics are eligible for the flat-rate accounting scheme:

• Business revenues must not exceed the annual ceiling of EUR 65,000 (regardless of the Adeco code applied).
• Expenses for employees, collaborators and ancillary work must not exceed 20,000 euro gross.

Subjects

The flat-rate accounting scheme proves to be suitable to meet the needs of smaller enterprises and professionals.

How does it work?

Obligations

Taxpayers under the flat-rate scheme must undertake the following obligations:

• Number and keep all purchase invoices and customs bills;
• Certify receipts;
• For invoices that require it, integrate the indication of the rate and the relevant VAT. The latter must be paid by the sixteenth day of the month following the month in which the transactions are carried out.
• Carry out electronic invoicing for the Public Administration.

Advantages

Companies that apply a flat-rate scheme enjoy numerous tax and accounting advantages. In particular, taxpayers are exempt:

• From charging value added tax (VAT) on invoices issued;
• From the obligation of electronic invoicing;
• From the application of withholding taxes;
• From using the synthetic indices of fiscal reliability (ISA).
• From recording invoices and receipts.

Taxation

The flat-rate regime does not impose the payment of taxes normally required of entrepreneurs such as Irpef, Irap and the various additional municipal and regional taxes.

In fact, companies adopting the flat-rate scheme will only have to pay one tax, called the substitute tax. This corresponds to 15% of their taxable income, but can be reduced to 5% for the first five years of activity.

Simplified accounting regime

Requirements

In order to adopt the simplified accounting regime, taxpayers must ensure that, in the year preceding the year of application, they received

• Revenues not exceeding EUR 400,000 for the service sector;
• Revenues not exceeding €700,000 for other activities.

Attention! If the activity was started in the same year, the revenues to be taken into account are those obtained during that year.

In the event that an enterprise operates crosswise in services as well as in other activities, reference must be made to the revenues relating to the prevailing activity. However, in the absence of a clear annotation of revenues, activities other than services are generally taken into account.

Subjects

The simplified regime is open to sole proprietorships and partnerships that meet the prerequisites.

Attention! For taxpayers exercising an artistic activity, the simplified regime is the natural solution, regardless of the remuneration related to their profession. However, in this case, recourse to the ordinary accounting regime is also permissible.

How does it work?

Obligations

Taxpayers under the simplified regime are required to keep

• VAT registers;
• The register of depreciable assets (not necessary only if you provide the same data directly to the tax authorities);
• The single labour book if there are employees;
• The register of receipts and payments within 60 days of receipt or payment.

Attention! The stamping of VAT and depreciable assets registers is no longer compulsory. The progressive numbering obligation remains.

Advantages

The simplified accounting regime provides certain exemptions for users, such as:

• Drawing up financial statements;
• Keeping accounting records such as a journal, inventory book or auxiliary records.

Taxation

The taxes associated with the simplified accounting regime are as follows:

• Irpef, which is to be calculated on the basis of taxable income;
• Irap (which varies significantly depending on the economic situation of the company);
• Inps, according to the management to which it belongs.

Simplified cash regime

The simplified regime is also referred to as ' cash-based'. This attribution refers to the way in which taxable income is determined.

The 'on a cash basis' principle assumes that income is calculated on the basis of fees received and expenses incurred during the exercise of the profession. In short, the amounts actually received and spent during the year of imputation are taken into account.

Ordinary accounting regime

The ordinary accounting regime is a relatively complex system. It is aimed at monitoring the balance sheet and its changes, as well as all financial and economic movements of the company.

This is why it is advisable, if you decide to adopt this tax regime in your company, to seek the support of an accountant.

Requirements

There are no particular requirements for access to an ordinary accounting regime.

Subjects

The ordinary accounting regime can be adopted by any entrepreneur who wishes to take advantage of it.

However, there is an obligation for IRES persons to use this type of accounting regime. In fact, pursuant to Article 13(1) of Presidential Decree No. 600/1973, it is the only regime applicable to this type of company.

Thus, the ordinary accounting regime is particularly suitable for the following types of companies:

• Joint stock companies or similar (S.p.A., S.r.l., S.p.A.): as mentioned, it turns out to be the only applicable tax regime for these entities.
• Sole proprietorships or partnerships (Snc, Sas) that exceed the annual revenue ceiling allowed for access to the simplified regime (€400,000 for services and €700,000 for all other activities).
• Companies that voluntarily choose the ordinary accounting regime, although they meet the prerequisites for the application of the simplified accounting regime.

How does it work?

Obligations

Taxpayers under the ordinary accounting regime are required by civil and tax law to prepare the following documentation and to keep it:

• The inventory book, where all changes in the company's assets are recorded at the end of each financial year.
• The journal, where transactions involving entities outside the company are recorded on a daily basis.
• The auxiliary entries, where changes in income and stock are recorded.
• The asset book, with all the company's depreciable assets.
• The VAT registers of purchases, sales and receipts.
• Company books (for companies that have taken a corporate form).

In orderly bookkeeping there is also the obligation to keep all company accounts and to draw up the balance sheet, i.e. the official document in which the company's economic and asset situation is declared.

Advantages

Taxpayers in the ordinary regime will enjoy the following benefits:

• Possibility of organising long-term business planning.
• Facing fewer complications in the event of a change of company type. In this case, in fact, it will not be necessary to reconstruct a new asset system.

Taxation

In the ordinary accounting regime, taxation takes place:

• In relation to the rate of the IRPEF margin to which they fall, for sole proprietorships and partnerships.
• In relation to the IRES rate set proportionally, for corporations.
• Companies in ordinary accounting are then subject to the Regional Tax on Productive Activities (Irap).
• VAT, on the other hand, must be settled monthly or quarterly.

Which to choose?

Certain types of taxpayers, businesses or companies are obliged to adopt certain accounting regimes. However, excluding these cases, there are no parameters for determining the absolute suitability of an accounting regime for a given company.

Indeed, each company is a universe in itself, with different characteristics and objectives. Before choosing an accounting regime, therefore, the following factors must be taken into account:

• The average income of the company, or what it is supposed to achieve;
• The size of the expenses and costs to be incurred. These, in fact, can fundamentally affect the determination of taxable income. For example, in the case of very high costs and expenses, it is not advisable to use a flat-rate scheme.
• The amount of inventories (e.g., the simplified regime provides for initial inventories to be charged in the first year of application with no possibility of deduction in subsequent years. In the case of high initial inventories, it is inadvisable to adopt a simplified accounting regime).
• The type of customers: public or private? The distinction can sometimes make a difference. Indeed, the timing of payments by public entities is often longer than that of private entities. This detail may be a reason for penalisation in certain accounting regimes.

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Why accounting regimes are important for business

Knowing the accounting regimes and being able to choose the best among them is crucial.

Indeed, opting for the right accounting regime, i.e. the one that reflects the constituent characteristics of the company, is a major advantage for the entrepreneur. It allows, in fact, a thorough understanding of the business, its strengths as well as its weaknesses.

Once the right overview of the company has been acquired and its strengths and weaknesses revealed, it will be possible to devise a strategy for optimising business management. The latter will ultimately make the difference in business development.

The system of accounting regimes, therefore, is not to be seen as a mere legislative imposition to which one must submit. Rather, it should be exploited as a means of monitoring the performance of one's own business management and, thus, as a cue for improvement.