Exceeding the maximum income threshold for Sole Proprietors (FOP) in Ukraine in 2026: 15% surcharge and transition to the general tax regime.

The author of the article: Denis Korablyov

Modified date: 31 December 2025

Exceeding the income limit under the simplified taxation system is a real fear for almost every sole proprietor (FOP). Exceed the limit even by a few thousand hryvnias, and you are no longer a single tax payer. Retroactively. With all the consequences: additional taxes at different rates, 15% on the excess amount, a pile of paperwork and stress. But there is good news as well. On 03.12.2025, the Verkhovna Rada adopted a bill to increase the minimum wage for 2026. And along with it, the income limits for sole proprietors under the simplified system will automatically increase.

In this article, we break down: what exceeding the limit is and why it is serious, what exactly counts as a sole proprietor’s income and how to calculate it correctly, what new limits are set for 2026, what to do step by step if the limit has already been exceeded, how to fill out the declaration without mistakes, and most importantly – how to avoid such situations in the future.

What exceeding the limit means and what it leads to

Exceeding income for a sole proprietor under the simplified system sounds like something technical, but in reality it is a time bomb. Each single tax group has its own annual income limit. The penalty for exceeding the limit is 15% single tax on the excess amount. It may seem like not much, but let’s calculate it using a specific example. 

Suppose you are a sole proprietor in the third group with a 5% rate, your limit for 2025 was about 8.8 million hryvnias, and you earned 9.3 million. The excess amount is 500 thousand hryvnias. The penalty of 15% on this amount is 75 thousand hryvnias, which you will have to pay in addition to your regular single tax. 

In addition to the penalty, exceeding the limit means that you lose your single tax status in the quarter in which the excess occurred. If you are in the first or second group, you will have to move to a higher group or to the general taxation system. If you are in the third group – only to the general system, since a higher group for single tax payers is not предусмотрена. And switching to the general system is a completely different level of complexity: instead of a simple single tax, you will have to pay 18% personal income tax plus 5% military levy, keep detailed records of income and expenses, and if your annual turnover exceeds one million hryvnias – also register as a VAT payer.

What forms a sole proprietor’s income: what exactly we count

Before talking about limits and exceeding them, it is necessary to understand what is actually considered a sole proprietor’s income. Because it is precisely this understanding that determines whether you exceed the limit or remain in the safe zone. And there are nuances here that many people do not realize.

1. Income through the cash register.

Everything that you process through a cash register or a software cash register (RRO). If you sell goods or services for cash and issue a receipt, this amount automatically becomes part of your turnover. Everything here is simple and clear: whatever you process is included in income.

2. Cashless payments to your account.

These are all transfers to your sole proprietor account from clients, contractors, and partners. It does not matter who pays – an individual, another sole proprietor, or a legal entity. It does not matter what they pay for – goods, services, an advance payment, or final settlement. If the money is credited to your business account, it counts as income. The exception is the return of funds previously paid by you, for example, a refund of an advance payment to a supplier who did not fulfill their obligations. However, such a return must be documented.

3. Receipts through postal services and payment systems.

If you work with postal operators – Nova Poshta, Ukrposhta, or use NovaPay to accept payments – these amounts are also included in your turnover. Moreover, it is not the moment when you receive the money into your account that is counted, but the moment when the customer paid for the order. For example, the customer paid for a parcel with cash on delivery on the 15th, and you received the money into your account only on the 25th – it is included in turnover on the 15th.

4. Any other officially recorded payments.

This may be an advance payment from a client if you work on a prepayment basis. It may be a debt repayment if you previously provided a service on credit and the client repays the debt now. An important point: if you receive an advance payment, it is immediately included in income. Even if the service has not yet been provided or the goods have not been shipped. Later, when you fulfill the obligation, this advance is not counted again – it has already been included earlier.

What is NOT included in a sole proprietor’s income? 

Personal transfers from relatives or friends to your personal account are not counted – if this is not a business account and is not related to business activity. Refunds of funds previously paid by you to suppliers are not counted. Bank loans are not counted – this is not income, but a loan that must be repaid. Contributions from founders are not counted if you are a legal entity, although this is not relevant for sole proprietors.

Main advice: summarize your turnover monthly. Do not wait until the end of the quarter or the year. Create a simple table in Excel or Google Sheets and record all receipts there – through RRO, to the account, via postal services. At the end of the month, calculate the total and see how much you have earned since the beginning of the year. This takes 10 minutes but saves you from penalties and unpleasant surprises. If you see that you are approaching the limit, you still have time to react and make a decision.

Read more about which receipts are considered income and which are not in our article about a sole proprietor’s personal funds.

New income limits for sole proprietors in 2026: how much you can earn

Income limits for sole proprietors under the simplified system are tied to the level of the minimum wage set as of January 1 of the tax year. At the end of October 2025, the Verkhovna Rada proposed a bill setting the minimum wage for 2026 at 8,647 hryvnias. On 03.12.2025, the law was adopted. Based on this minimum wage, new income limits are calculated for all single tax groups. And these limits have increased significantly compared to the previous year.

Annual income limits by sole proprietor groups

What to do if you exceed the limit: step-by-step instructions

If you notice that you have exceeded the income limit for your group, do not panic. There is a clear procedure for how to act in such a situation. The main thing is to do everything correctly and on time in order to minimize penalties and avoid additional problems with the tax authorities.

Step 1: Don’t panic – you remain a single tax payer until the end of the quarter

The first and most important rule is not to panic. If you exceeded the limit, for example, on October 10, you will not be removed from the simplified system at that very second. Until the end of the quarter in which the excess occurred, you remain a single tax payer and continue to pay your usual tax at the usual rate. In our example, until December 31 you continue to operate as a single tax payer, nothing changes.

However, there is a nuance: you will have to pay 15% single tax on the excess amount. This is not a penalty in the classic sense, but an additional tax on the portion of income that exceeded the limit. For example, your limit in the third group is 10 million, and you earned 10.5 million. The excess amount is 500,000 hryvnias. You pay 15% on these 500,000, that is 75,000 hryvnias. This must be paid within 10 days after the deadline for submitting the declaration for the period in which the excess occurred.

Step 2: Determine which system you are switching to

Depending on which group you are currently in and how much you exceeded, you have several options. If you are in the first group and exceeded the limit, you may switch to the second or third single tax group, or to the general taxation system. If you are in the second group, you may switch to the third group or to the general system. If you are in the third group, only to the general system, since there is no higher group within the simplified system.

The choice depends on your situation. If you exceeded the limit slightly and plan to earn less next year, it may be worth switching to a higher simplified group. If your business is steadily growing and you understand that you will earn more than the limits, it is better to switch to the general system right away so as not to repeat the entire procedure again next year.

Step 3: Submit an application for transition

An application to switch to another taxation system must be submitted by the 20th day of the month following the quarter in which the excess occurred. For example, you exceeded the limit in October 2025 – this is the fourth quarter. You submit the application by January 20, 2026. But there is an important nuance: in the application itself, you indicate the transition date as January 1, 2026, that is, from the beginning of the new year, not from the moment of exceeding the limit.

If you exceeded the limit in the last quarter of the year, as in our example, the situation is somewhat simpler – you switch to the new system from the new year. If you exceeded it in the first, second, or third quarter, you will have to switch already in the current year, but retroactively, from the first day of the quarter following the quarter in which the excess occurred.

Action table when exceeding the limit

Additional requirements: When switching to the general taxation system, you must register as a VAT payer.

Please note: legal entities in the third group, when exceeding the limit, pay not 15% but double their regular single tax rate. That is, if you paid 5%, you pay 10% on the excess amount. If you paid 3%, you pay 6%.

A critical nuance regarding VAT

And now the most important thing that many people are unaware of. If you switched to the general taxation system specifically due to exceeding the simplified system limit, you automatically become a VAT payer. Even if your annual turnover is less than one million hryvnias – the standard threshold for mandatory VAT registration. The tax authority’s logic is as follows: if you exceeded the simplified system limit, it means your turnover is definitely more than one million hryvnias, which is the threshold for mandatory VAT registration. Therefore, the transition happens simultaneously – both to the general system and to VAT. 

Another nuance: the income limit of the simplified system is also carried over to the general system. That is, if you were in the third group and earned 10.5 million hryvnias, exceeding the limit by 500 thousand, these 10.5 million are also taken into account to determine whether you must register as a VAT payer. The tax authority will not calculate income separately “before the transition” and “after the transition” – it takes the total annual income.

Therefore, if you understand that your business is growing and you will soon exceed the limit, it is better to switch to the general taxation system voluntarily in advance rather than wait for an automatic transfer. This way, you can prepare, set up accounting, hire an accountant, and register as a VAT payer at a convenient time, rather than in emergency mode after exceeding the limit.

If you are switching to VAT for the first time, we also recommend reading our article on the tax invoice blocking system to avoid common mistakes.

How to fill out the declaration when exceeding the limit

When you exceed the income limit, reporting must be done slightly differently than usual. This especially applies to sole proprietors in the first and second groups, who normally do not file declarations at all and only pay a fixed monthly amount. However, when the limit is exceeded, the rules change.

For sole proprietors in Groups 1-2, a quarterly declaration is mandatory

If you are a sole proprietor in the first or second group and have exceeded the limit, you must file a quarterly single tax payer declaration. This is form J1312101 – this specific form is used for reporting when the limit is exceeded. Normally, sole proprietors in the first and second groups do not submit declarations, but when the limit is exceeded, this becomes mandatory regardless of the decision you make – whether you switch to a higher single tax group or to the general taxation system.

You must submit this declaration within 40 calendar days after the end of the quarter in which the excess occurred. For example, if you exceeded the limit in October, this is the fourth quarter. The fourth quarter ends on December 31, and from this date you count 40 calendar days – which means the declaration must be submitted by February 9 of the following year. The good news is that submitting a quarterly declaration automatically exempts you from the obligation to submit an annual declaration for the year in which the excess occurred.

What must be included in the declaration?

In the declaration when exceeding the limit, you must indicate several mandatory amounts. First, the income received within the limit – that is, the portion of your annual income that falls within the allowed amount for your group. Second, the amount by which the limit was exceeded – how much you earned above the permitted limit. Third, the income taxed at the new rate after switching to a higher group or the general system, if such income was received after the excess within the same year.

The declaration also includes advance payments in accordance with the Tax Code – these are your monthly fixed payments if you were in the first or second group. You must also specify the amounts of single tax accrued at a rate of 15% on the excess amount – this is exactly the additional tax you are required to pay. And, of course, the military levy – 864.70 hryvnias per month multiplied by the number of months for which you are reporting.

For sole proprietors in Group 3, everything is simpler

If you are a sole proprietor in the third group, reporting is simpler – you already submit quarterly declarations anyway, because in the third group this is mandatory regardless of whether you exceeded the limit or not. You simply indicate the excess amount in the declaration for the quarter in which the excess occurred and calculate 15% single tax on it. Everything else is filled out as usual.

Filling out a declaration when exceeding the limit is not the easiest task, especially if you have never filed declarations before and kept records on your own. Mistakes in the declaration can result in additional penalties, delays in registering the transition to a new system, and unnecessary questions from the tax authorities. Therefore, if you feel that it is difficult to sort it out on your own, it is better to contact a professional accountant.

How to avoid exceeding the limit: practical tips

The best way to deal with exceeding the limit is to prevent it altogether. It sounds trivial, but it is precisely due to the lack of control that most sole proprietors end up in a situation where it is already too late to fix anything. Here are a few simple but very effective tips that will help you stay in the safe zone.

• Monitor your income monthly

Create a simple spreadsheet in Excel or Google Sheets. Set up columns: month, income for the month, cumulative total since the beginning of the year. At the end of each month, enter all receipts there – through RRO, to the account, via postal services. Sum it up and see how much you have already earned since January 1. This way, you always know where you stand relative to the limit. 

• Plan your sales

If your business has predictable income – subscription-based services, regular supplies, annual contracts – create a sales plan for the entire year. Outline approximately how much you expect to earn each month. This way, at the beginning of the year you will already see whether you fit within the limit or whether something needs to change.

• Move to a higher group in advance

If you see that you are approaching the limit and there are still several months left until the end of the year, it is better to move to a higher group voluntarily rather than wait for an automatic transfer. With a voluntary transition, you choose the most convenient moment yourself, have time to prepare, set up accounting, and register as a VAT payer if necessary. With an automatic transfer after exceeding the limit, you have to act urgently, pay the 15% penalty, deal with the declaration if you have not filed one before.

• Hold back sales at the end of the year

If you are already close to the limit and there is only a month or two left until the end of the year, sometimes it makes sense to slightly slow down sales or shift part of the payments to the next year. Of course, this is not always possible or beneficial for the business. But if there is such an opportunity, sometimes it is better to receive payment in January rather than in December in order not to exceed the limit and avoid paying a penalty.

If you feel that control is slipping away, it is better to entrust this to a professional. An accountant will not only file declarations and calculate taxes, but will also continuously monitor your income, warn you when you are approaching the limit, and advise when it is better to switch to another system.