Income Limit for Your Tax Group Exceeded: What Should You Do?
The half-year performance results, which we recently reviewed, have shown that some entrepreneurs face the risk of exceeding the maximum income limit for their single tax group in the coming quarters. In some cases, the limit has already been exceeded. Therefore, we would like to remind you of the steps an entrepreneur must take in such a situation in order to avoid tax penalties and increased financial monitoring scrutiny.
We have previously provided detailed information about the specifics of operating a small business in the article Check-list for 2026 for the individual entrepreneurs – payers of the single tax. It contains information on business activities, income limits, hired employees, cash register requirements, taxes and fees applicable to each group. Information on penalties, new reporting requirements, and important nuances regarding individual entrepreneurs in Group 1 can be found in the article What will change for entrepreneurs in 2026.
Quite often, especially in the early stages of running a business, an entrepreneur underestimates the potential volume of revenue and chooses the more affordable and simpler Group 1, despite its stricter income limits. Alternatively, rapid business growth combined with inflation rate may unexpectedly push account inflows beyond the established threshold. Whatever the reason, in the second half of the year businesses are frequently faced with the question: what should be done next?
If the income limit has already been exceeded, regardless of the single tax group in which the entrepreneur operates, a higher single tax rate of 15% must be paid. However, this rate applies not to all income, but only to the amount in excess of the limit. The fact of exceeding the limit must also be reflected in the relevant lines of the tax return. Moreover, for individual entrepreneurs in Groups 1 and 2, a tax return must be submitted for the quarter in which the limit was exceeded, despite the reporting period of one year applied to them.
As the next step, depending on the group, the entrepreneur must either move to another group or withdraw from the simplified taxation system altogether. Individual entrepreneurs of Groups 1 and 2 have the opportunity to move up to the next group if their total income does not exceed the income threshold established for that next group.
Please note that for 2026 the maximum income limits are as follows:
- Group I – UAH 1,444,049 (167 minimum wages);
- Group II – UAH 7,211,598 (834 minimum wages);
- Group III – UAH 11,857,300 (1,159 minimum wages).
Therefore, if a Group 1 individual entrepreneur receives income exceeding UAH 1,444,049 but below UAH 7,211,598 during the half of the year, they may move to Group 2. If the income exceeds that level, they may move to Group 3. Accordingly, representatives of Group 2 should use the limits established for Group 3 as their benchmark.
However, a Group 3 individual entrepreneur has no such option and must withdraw from the simplified taxation system and switch to the general taxation system from the beginning of the quarter following the quarter in which the excess occurred.
Regardless of whether an individual entrepreneur changes the single tax group or withdraws from the simplified taxation system, an application in the prescribed form must be submitted by the 20th day of the month following the quarter in which the limit was exceeded. The transition to another group (or to the general taxation system) takes effect from the beginning of the next calendar quarter.
In order to remain on the simplified taxation system in the following year, the income for the year must not exceed the maximum income allowed for Group 3. In that case, in the following year the entrepreneur may operate under the group corresponding to their income level.
If an individual entrepreneur withdraws from the single tax system and operates under the general taxation system until the end of the year, they may return to the simplified taxation system from January 1, 2027, provided that their annual income allows them to do so (income earned while on the single tax system plus income earned while on the general taxation system does not exceed the limit applicable to the chosen group). The application for transition from the general taxation system must be submitted no later than December 15, 2026.
If, for any reason, an individual entrepreneur fails to switch to another group or to withdraw from the simplified taxation system, the tax authorities may identify the violation during an audit and revoke the entrepreneur's right to apply the simplified taxation system in accordance with Clause 299.11 of Article 299 of the Tax Code of Ukraine. In such a case, returning to the single tax system will be possible only after four consecutive quarters under the general taxation system.
Therefore, if you see that your actual or expected income is approaching the maximum threshold, and you wish to remain on the single tax system, unfortunately, you must temporarily suspend your business operations in a timely manner, or, where possible, diversify your activities or reschedule contracts. If this is not feasible, follow the procedure described above, while ensuring that by the end of the year your income does not exceed the maximum income limit established for Group 3.
Natalia Shcherbak,
Accounting and Tax Consultant