2025 small business VAT reform definitively cancelled after Senate vote

The reform of small business VAT thresholds, which was suspended earlier this year, has now been definitively abandoned, with a new version proposed for 2026 also likely to be withdrawn.

Many small business owners opposed the plans set out in the 2025 finance law as they would bring more paperwork and the need to pay for accounting, and require them to raise the amounts charged to customers. 

The proposed law to cancel the suspended 2025 finance law VAT plan was put forward by centrist MP Paul Midy. Its unanimous adoption by the Senate puts an end to uncertainty over whether the proposals could return. 

It follows the adoption by the Assemblée nationale MPs of the same law in June.

A reduction in VAT-exemption threshold

The 2025 plan, widely seen as draconian, reduced the VAT-exemption thresholds to €25,000 of turnover per year for small businesses on simple ‘micro’ tax regimes. Previous levels were €37,500 for many kinds of services and trades, and €85,000 for those running commercial businesses and renting out furnished accommodation.

Once a business’s turnover in a given year passes the VAT thresholds it becomes eligible to enter the VAT system, needing to add VAT (in many cases a standard 20%) to bills and pass the tax thus collected on to the government. In turn it can then claim the VAT element back on supplies it purchases if it keeps all relevant paperwork. 

If it only exceeds the thresholds by a small ‘tolerance margin’ then the change starts from the following calendar year, otherwise it starts immediately.

Businesses under the réel tax regime, where ‘real’ expenses must be claimed with supporting paperwork (as opposed to fixed expenses deductions under the micro regimes), are automatically subject to VAT. Many small businesses prefer the micro regimes, also often referred to as ‘auto-entrepreneur’.

Proposed changes

Under new proposals in the 2026 finance law (which forms the annual budget, along with the social security finance law) the levels would instead be standardised at €37,500 from January 1, 2026 apart from for self-employed people in construction trades, for whom the level would be €25,000.

This change, affecting ‘commercial’ businesses (buying and selling etc) and letting, is also opposed by many small businesses, including the Union des auto-entrepreneurs group.

Its president, François Hurel, said: “They have ended it, not just to bring it in by the back door again. By my calculations, this new plan would bring in only €20million to the state per year, so I do not understand the obsession with this.”

However, Small Businesses Minister Serge Papin has said that “it is in the general interest to find a compromise” and that the proposal is a “balanced position” which affects only a quarter of the number who would have been affected by the previous plan.

MPs to debate 

On Wednesday MPs in the Assemblée’s finance committee adopted two amendments cancelling any VAT change as part of their scrutiny of the ‘income’ (taxation) element of the 2026 finance bill.

However, they were unable to agree on a compromise version of the overall ‘income’ text to pass to the full Assemblée nationale. Thus the bill has returned to the full house in its original form as submitted by the government.

The fact that the two amendments against the new VAT proposals were adopted almost unanimously in the committee is, however, seen as a strong indication that the measure may be struck out again.

Mr Midy, who also put forward one of the amendments, has said he has “no doubt that our amendment will be voted through unanimously”, adding that “we have to move on now, we have debated enough, we need to give our auto-entrepreneurs stability, not stress”.