6.1. Payment Methods
Since 2019 'deduction at source' (prélèvement à la source) has been in place in France, which we outlined in our Newsletter article at Taxation of Income in 2019.
Salaried persons in France now pay their income tax via deduction at source (PAYE) - prélèvement à la source. The same applies for those in receipt of a French pension.
Clearly, it cannot apply to those with foreign sourced income, or business and investment income.
Accordingly, if deduction at source does not apply to you, you will pay 'on account' (acompte) each month, using an estimate of your income for the year.
Each year, based on your previous tax return, the tax authority will adjust your tax rate (taux de prélèvement) which is then used to determine the on-account sum you will pay each month, by direct debit.
Thus, from Sept 2022 to August 2023 you will pay on-account based on your tax return made in 2022 on your 2021 income.
From Sept 2023 to August 2024 you will pay based on your tax return made in 2023 on your 2022 income.
If you are a micro-entrepreneur who has elected to pay income tax on their business income using micro-fiscal (also more formally called the prélèvement libératoire ) you will not be affected by the on-account payment system for this income, although it will be used for your other income eg pension, rental income.
Dividends, interest and stock gains also continue to be taxed at source, as currently occurs, although you can opt out of deduction at source.
Payments on-account and other payments are made via the government tax website by setting up a direct debit and occurs on 15th of each month.
You can also pay at an accredited 'tabac', up to €300 in cash or bank card. The list of accredited tabacs can be found at Paiement de proximité.
If you are paying for the first time it is still possible to pay on-line on the government website.
It is possible to pay by cheque, cash or standing order, but only if your bill is no greater than €300.
If you are paying tax for the first time, you can either pay in one lump sum, by monthly direct debit, or in four instalments.
i. Single Payment
When your tax notice is sent out in autumn/late summer of each year you will be required to pay your tax bill by the date stated on the notice.
However, in subsequent years, if you estimate your tax bill is likely to be higher than €345 you can elect to pay either by monthly direct debit or in three instalments.
Only if the bill is under €345 is the single payment method obligatory.
ii. Payment Quarterly
The instalment method is called prélèvement à l'échéance or paiement par tiers provisionnel.
If you have previously paid income tax in France then you can pay on a quarterly basis.
You will pay in February, May, August and November on or around 15th of each month. The first three are provisional payments based on your previous tax liability prior to your tax liability for the year being determined and a final balancing payment being made in November.
In the event that your tax liability turns out to be lower than the sum you have already paid you will be given a refund of any over payment.
If you assess that your liability to tax in the tax year will be higher or lower than the previous year it is possible to alter the amount of the provisional payments you make each year, either up or down.
Some care is needed with this approach as you only have a margin of error of 10%, or face a potential penalty of 10% on the amount of the underpaid tax.
If you consider your tax bill will be lower than €345 you can also request that you should not be subject to provisional payment in the current year.
iii. Payment Monthly
Instead of the instalment method you can also pay by monthly direct debit (prélèvement mensuel) over 10 months between January and October each year on or around 15th of each month. The final balancing payment is made at the end of the year following receipt of your tax demand.
The amount of the direct debit each month is one-tenth of the tax you paid the previous year.
Following the ten direct debit payments if you have further tax to pay these must be paid in the autumn/winter. If less than €300 it will be deducted in one payment, and if greater, in equal payments on 25th Sept, 26th Oct, 26th Nov, and 28th Dec.
If you have overpaid tax by the tenth payment you will receive a tax refund after your tax notice has been sent out.
You can elect to pay by direct debit at any point during the year, but the start date from which payments by direct debit will be accepted will depend on when you made your application.
For applications made after 1st July the direct debit will not commence until January the following year.
You are able to use a foreign bank, provided it is SEPA compliant.
As with payment by instalment you can reduce (or even terminate) the direct debit if you consider your tax bill will be lower in the current year, although you must do so by 30th June each year. You have a margin of error of 20% or face a 10% penalty.
6.2. Payment Difficulties
If you find yourself in financial difficulty in paying your tax bill it is possible to negotiate a delay in payment with the tax office.
Likewise, if you have incurred a penalty charge due to non-payment you can also seek relief from the penalty.
You will need to make application to the local tax office with proof of your current circumstances.
If your current income has declined by at least 30% over the proceeding three months you are entitled, as of right, to more time to make the payment.You need to make application.
Less than 30% then the decision is discretionary, and application needs to be made to the local tax office.
Where your circumstances have changed dramatically for the worse since the previous year, then you can also ask for an exoneration from the payment of provisional sums.
If you do not pay your tax bill by the due dates then your liability is increased by 10%, as well as an interest charge of 0.40% per month (4.80% per year) on the outstanding sum.
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