Understanding taxation as a self-employed person

As a freelancer, the administrative management of your business is one of the prerequisites to ensure the continuity of your business. However, some administrative tasks, such as tax management, are not easy to understand in their entirety. In fact, this can quickly be complex and time-consuming, especially when you have not opted for automation solutions or invested in accounting management tools. But in order to ensure an exhaustive follow-up and carry out your tax declarations in particular, it is necessary to understand the specificities and key terms in taxation and the important dates for managing your cash flow properly.

Summary

1. Independent taxation: how to find your way around?

2. Tax lexicon you need to know

Independent taxation: how to find your way around?

As a self-employed person, you will hardly be able to get past the administrative procedures. Unless you seek help from an accountant, for example, you will have to file your declarations yourself. Even if you choose to invest in an accounting management tool (which we strongly recommend), it is necessary to fully understand what it is about.

As a business owner, you need to know the ins and outs behind terms like profits, deductible expenses or tax regime. But depending on your choice to practice in your own name or through a company, these concepts will be more or less simplified. Some statutes also encourage you to delegate your administrative tasks, because of the complexity of the additional declarations to be completed. Unlike an employee who simply has to fill out his annual tax return, your returns will be a little more numerous. Depending on your status, you will not be taxed in the same way, just as you will not always be subject to VAT.

The auto-entrepreneur status benefits from a general simplification of your declarations. Once your contributions to URSSAF are settled, you can file your tax returns in the spring, at the same time as your tax return. Depending on the type of business you are doing and your tax status, you can confirm the indicated amount of your turnover or update it as needed.

After the micro-enterprise, the declarations are a bit complicated. Sole proprietorships and corporations must provide a certain number of tax declarations: for service providers, for traders and artisans, VAT returns, fee declarations, social declarations, and the professional annex to the tax return. Companies will have to add the following documents: the balance sheet, the income statement, the dividend declaration, as well as the minutes of the general meeting.

Note, however, that this subject evolves regularly, depending on the legislation in force. So before you even think about optimizing your income, make sure you know the following concepts.

Glossary to know to better control your taxation

Benefit

Before discussing tax concepts, let's recall this accounting term. Profit corresponds to turnover minus deductible expenses (turnover - deductible expenses = profit). It allows the tax authorities to determine your tax base and calculate the amount of your taxation.

Special mention for micro-BNC schemes : it is not the profit but the turnover that is taken into account. This is explained by the fact that a lump-sum allowance is already applied (around 34%).

Deductible expenses

These are simply expenses related to your professional activity, which can be deducted from the turnover in the statement of taxable profit. This may include hardware purchases, software financing, travel expenses, training costs, real estate purchases, etc.

VAT: declaration and franchise

The VAT return can be monthly, quarterly or annual, depending on your regime. This declaration allows you to indicate all the VAT that you collected during your services or for your purchases. The tax administration will balance the final result to send you a refund request or pay you the surplus. It can be particularly useful when you want to make a professional purchase, for example.

Exemption based on VAT, on the other hand, is a specific VAT regime. Businesses benefiting from this regime do not charge VAT and do not recover it on their purchases. It is a simplified regime where prices are displayed excluding taxes (HT) and where no declaration is required. The VAT exemption applies below a certain annual turnover threshold, which varies according to your activity. For example, for service providers, the threshold is less than €36,800 in annual turnover, generally corresponding to the start of activity of a self-employed person in a micro-enterprise.

Tax package

It corresponds to all the documents that you must send, each year, to the tax authorities. The tax package includes the tax return, as well as other supporting documents such as tables and the accounting file. If your fiscal year corresponds to the calendar year (from January 1 to December 31), the tax return must be sent in May of the following year. In the event of a delayed fiscal year, it must be sent within three months following the end of the financial year. For example, if you end your fiscal year on June 30, you have until September 30 to file your returns. More specifically, this concept concerns self-employed persons in companies.

Tax regime: income tax and corporate tax

When you became self-employed, you made the choice between two tax regimes: income tax (IR) or corporation tax (IS). Depending on your choice, you will not pay the same amount on your profits. The tax rate for a freelancer subject to IR varies from 0% to 45%. For a self-employed person subject to income tax, it will be 15% or 25%. But these rates may also vary depending on the profits made over the year. It is certainly possible that, starting with a certain amount, it will be more advantageous for you and your treasury in terms of taxation and therefore of legal status.

In other words, it is not easy to understand taxation when you are a freelancer but by maintaining a rigorous management of your administrative follow-up, you will be able to control your finances more calmly. Take the time to learn, train yourself and surround yourself with the right resources to better master this subject. But if you have difficulty understanding your tax situation, contact accounting experts who can share advice adapted to your situation and to whom you can delegate your administration.

The information in this article is subject to change depending on the legislation in force.

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