Guide to Micro-Entrepreneur Business in France
- What is a Micro-Entrepreneur?
- Business Registration
- Social Security
- Income Tax
- Business Rates
- Status of Spouse
- Should You Elect for Micro-Entreprise Status?
- Payment of Taxes and Social Insurance
- Business Accounting
- Running a Chambre d'Hôte
- Multiple Business Activities
9. Payment of Taxes and Social Insurance
We set out in this section the process of paying social security contributions and income tax.
9.1. Social Insurance Payments
The contributions are based on your turnover (sales) for the previous accounting period.
Of course, 'sales' rarely equates to 'cash received', due to the gap between invoiced date and receipt of monies.
In addition, some invoices may never be paid due to bad debts, a fact of life for most businesses.
That can inevitably lead to problems of cash flow in the business, particularly if there are also tax and social security contributions to meet.
The legislation on the declaration of the chiffre d'affaires (turnover) recognises the issue, which requires that only cash received is defined as turnover for the purposes of calculating social security payments.
Thus, the guidance issued by the government states: "Le micro-entrepreneur doit déclarer pour chaque période le montant des recettes réellement encaissées, et non pas facturées."
Accordingly, if in the quarter, you invoiced sales of €5,000, but received cash amounting to only €2,500, the amount you declare as your turnover for the period is the lower figure.
Conversely, if you invoiced €5,000 in the reference period, but received cash of €7,000, then the figure you report is the larger one.
If you have no turnover in an accounting period then no charges are payable.
ii. Payment Schedule
When you create your micro business you need to elect whether to pay your social security contributions each month or quarter.
You have 30 days from the end of the accounting period (monthly or quarterly) to pay.
The standard quarterly declaration dates and accounting periods are as follows:
30th April (January, February and March) 31st July (April, May and June) 31st October (July, August and September) 31st January (October, November and December)
The first payment is not due until the business has been in existence for at least three months, although you will pay contributions on the turnover you achieved during this period.
Even though there may be no turnover in the period, you are still required to make the declaration, stating 'néant' where the turnover figure is required, if this is the case.
Your turnover declaration must be made every reference period, either monthly or quarterly, failing which you face penalties for late notification, which, depending on the circumstances, may either take the form of interest on the outstanding sum or a fixed sum determined by the social security collections agency URSSAF.
iii. On-Line Payment
The easiest way to make these payments is on-line, by registering to do so on the official site.
Registration requires you enter your personal, business and bank account details.
Once you have registered and set up a direct payment from your bank, you simply enter your turnover for the period, and the amount you pay is automatically calculated for you. You press 'Envoyer' and it is all done until the next time. You will receive an e-mail confirmation of payment.
Those micro-entrepreneurs whose turnover reaches a minimum threshold are required to declare their income for the payment of social security contributions using the government on-line payments system. These thresholds are €20,700 for sales activities and €8,300 for service based activities.
There are similar on-line payment requirements concerning VAT and business taxes.
9.2. Income Tax Payments
The way you pay your income tax will depend on whether you use the régime de base or micro-fiscal for income tax, which was considered in the section Micro-Entrepreneur Income Tax.
In the former case you paid income tax (if any) following receipt of your annual tax notice, although after your first income tax declaration you pay ‘on account’. You could arrange to pay monthly or quarterly.
In the later case you pay each accounting period, together with your social insurance payments.
Your periodic on-line turnover declaration will indicate at the top of the declaration the option you have chosen.
The introduction of deduction at source (prélèvement à la source) for income tax in France in 2019 has slightly changed these arrangements, although not significantly.
You can read about this new system of of taxation in a Newsletter article we published at Taxation of Income in France 2019.
As far as micro-entrepreneurs are concerned, theyt pay income tax on the basis of their turnover, but as this figure cannot be known in real time by the tax office, the deduction at source will be based on the tax return from your previous year, in the form of a withholding tax.
That means that you will pay income tax each month (or quarter) in 2019 on your 2017 income tax as given in your 2018 tax return!
At least, you will do so for the first part of the year, for after submission of your tax return in 2019 on your 2018 income, in September of 2019 the deduction at source will be changed to reflect any differences in income that have arisen.
The same will happen in future years, so that in September 2020 the deduction at source will be updated to reflect any changes in income that occurred in 2019, with the taxpayer asked to pay more or given a tax refund.
In all of this it is important to note that the income tax payable in 2019 will be a withholding tax for your income earned in 2019, as due to the introduction of taxation at source income tax due on 2018 will not be payable. A tax credit will be granted for all tax that may have been paid in the year.
The deduction at source will be made on the 15th of every month, commencing 15th January 2019.
If you would prefer that the payment of income tax was made on a quarterly basis, then you can opt to do so on-line through your micro-entrepreneur account with URSSAF, the social security contributions collection agency. The first deduction would be 15th Feb and quarterly thereafter.
The amount of the deduction will reflect your income from all sources, such as pension and investment income. The tax due from these different sources will be brought together in a single deduction.
The tax return that you will have received in autumn this year explains the planned deductions for 2019, for each type of income, and the total amount that will be deducted each month.
You can change the amount of the deduction each month if there is a significant change in your turnover.
However, you need to be careful about doing so, as if you make a major change to the amount payable, which later results in you paying a lot less in tax that the amount you owe you could face penalties.
Although the income tax calculation for micro-entrepreneurs is based on turnover, a fixed cost allowance is granted before tax is determined. This allowance varies by type of business, from 34% to 71%. So the tax payable is based on turnover less the allowance.
Whilst most micro-entrepreneurs will face this change, it will not apply to all of them.
Those who have opted to pay income tax each month alongside their social security contributions will not be affected by the change.
These micro-entrepreneurs are those who have elected to be taxed on the basis of micro-fiscal' (also called prélèvement libératoire), under which a small fixed percentage of income tax is payable each month on total turnover. Under this system there is no cost allowance as there is with income tax.
One of the malign effects of the introduction of deduction at source is that those who have elected for the micro-fiscal in 2018 will not be granted a tax-free year in the same manner as other taxpayers. The lack of equal treatment is one that has caused a great deal of controversy and resentment.
iii. New Business
If you are a new business without a previous tax record for the business you have three options:
- You can opt for the micro-fiscal and pay as you go on your turnover;
- You can elect to pay an amount each month without adopting micro-fiscal , or
- You can simply do nothing and wait until you make your tax return the following year.
9.3. Income Tax Return
Completion of your annual income tax return is made on the following basis:
i. Option Pay As You Go Income Tax
If you have opted for the micro-fiscal impôt libératoire during the previous year then your turnover should be declared in the section headed 'Auto-entrepreneur ayant opte pour le versement de liberatoire de l'impot' on Form 2042C-Pro, in the relevant box, as follows:
- 5TA : for commercial activities, which grants an abatement of 71%.
- 5TB : for services based activities services, which grants an abatement of 50%.
- 5TE : for liberal professions in CIPAV (BNC income), which grants an abatement of 34%.
ii. Non-Option PAYG
Conversely, if you have not opted for micro-fiscal, or you were not eligible, you should not complete this section, but the section headed 'Régime Micro-Entreprise '.
You need to then declare as either 'Revenus Industrials Commerciaux Professionnels' for commercial and services businesses or, for those who are registered libérales CIPAV, the section 'Revenus Non-Commerciaux Professionnels'.
The relevant boxes are:
- 5KO - for commercial activities, an abatement of 71%.
- 5KP : for service based activities, an abatement of 50%.
- 5HQ : for liberal professions in CIPAV (BNC income), an abatement of 34%.
The form used to make an income tax declaration for micro-entrepreneur earnings is F2042C PRO, a complementary form to the main F2042 tax return.
In order to assist in the completion of the tax return, in a rare gesture of cordiality, URSSAF (normally) send out to all micro-entrepreneurs a statement (attestation fiscale) showing the level of the turnover declared in the relevant tax year, which, once you have verified that it is correct, can then simply be transcribed onto the tax return.
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