If you set yourself up as self-employed in France, you may remember having the option to tick the box ‘versement libératoire de l’impôt sur le revenue’. If you (more likely) have no idea what this means and whether you ticked it or not, it's a forfait amount on actual income rather than the normal monthly retention payment estimates based on previous years liability. Let’s dig a little deeper and make sure you feel really confident that you understand what this means, and how it impacts you and your declarations as a self-employed (auto-entrepreneur) worker in France.
To be really clear (because we all know how confusing taxes can be), let’s start by stating the differences between social charges and income tax - it can be easy to put these two definitions under the same bracket of ‘paying taxes’, except they are different and they are charged separately in France.
Social charges are payments made by your self-employed business to the French social security system. The purpose of the French social security system is simple: it’s created to protect people living in France when certain events occur during their life.
There are four branches that come under the ‘expenses’ umbrella term. They include the health insurance branch (hospital costs, medicines and consultations), the retirement pension branch, the occupational risks branch (occupational diseases and accidents at work) and the family branch (birth and childcare, allowances for education and housing).
These four branches form the scheme for the French social security system. All people living in France help to fund the social security system which in return provides cover for everyone. Your payments go towards these governments budgets and they are to be paid monthly or quarterly depending on your auto-entrepreneur set-up. They are charged at a flat rate depending on your type of activity.
Income tax on the other hand, is a tax charge based on your level of income. As part of your income tax, you must declare your annual earnings in your yearly tax return, submitted once a year, in May/June.
1. The nitty gritty - what does paying income taxes ‘at source’ mean?
When you login to your self-employed portal on Urssaf and register your income for the quarter or monthly, your tax charges and social charges will be automatically calculated and presented clearly for you. If when setting up, you ticked the box ‘versement libératoire de l’impôt sur le revenue’ and chose to pay income tax at source, this means you’ll be paying income tax on all your self-employed earnings that will be paid at the same time as your social charges when you declare your earnings on Urssaf (either quarterly or monthly). Please note that if you choose to pay your income tax at source, this does not replace your yearly income tax return and you’ll still have to declare this once a year (in addition to declaring your self-employed earnings on a monthly/quarterly basis).
For example, if you fit into the liberal profession tax bracket and you’ve declared 100€ of self-employment income, you’ll pay 2,20€ income tax (2.2%). If you declare 10,000€ of self-employed income, you’ll pay 220€ income tax *On top of your social charges.
It’s important to note that whilst paying tax at source is much simpler (because you do it as you go) IF you are below the taxable threshold and aren't due to pay income tax, you are better off not ticking the box.
2. Not paying income tax at source
If you choose not to pay your income tax at source, you’ll pay income tax based on your yearly and household earnings. If you’re below the taxable income threshold you won’t pay any income tax but if you’re over the income tax could be higher. We’ve included the list of taxable income (for a single person) below.
If you’re a single person without children and plan on invoicing your clients over 15,000€ in the year, then we recommend you pay income tax at source - for ease. However, if you’re not due to pay income tax because you have a high threshold (or you have a large household), we would recommend not paying income tax at source.
We hope this is clear and has helped clear up some of your confusion related to the French tax system and social security system. If you have any questions about either entity, please don’t hesitate to get in touch.
Speak soon!