This, unfortunately, is now a subject very close to my heart – which is now not beating quite the way it should without medication.
I have just completed my third year as a ‘liberal professional’ in France, and while I thought I had things well under control, the French accountancy system coupled with the fall of sterling and the tightening of banking practices means I too may have to throw in the towel, like so many others before me. (or throw in the sponge, as they say in France)
Now, I have an accountant, a nice man who made me feel very secure about the whole thing when I first signed-up in 2006, saying ‘your tax payments will be based on actual figures, so there’s no need to worry about nasty surprises’. What he failed to tell me, and he confessed this was indeed a bit of an oversight, that when it comes to social security payments – it’s an entirely different ball game. Why?
Well over an above your income tax (which incidentally is peanuts by comparison) you have to pay pension, social security and health insurance.
During your first year of business you pay each of these to a statutory ‘minimum’ level (regardless of earnings). During the second year, you again pay this minimum for the first 10 months of the year. So you’ve gone nearly two years getting used to paying the ‘minimum’. At the end of your second year you are required to pay balancing payments for your first year of business in the last two months of the year (November and December).
Now it is entirely likely that your first ‘year’ was not actually a whole year, unless you set it up on the 1st of January – so these payments at the end of year two are again unlikely to seem too harsh.
During year three your payments for the first 10 months are based on your earnings for year one, again this won’t seem too harsh if year one was not a complete year. Then at the end of year three, you must pay balancing payments for year two. This is when you break down sobbing.
The November and December payments in year three are the first time you have to pay according to your real income for a full year in business. This comes as quite a shock, not only because the payments cover your second year in business – but also because they cover off balancing payments for your first year too (to cover the months before you set up business)!
It’s at this very time they start asking for actual payments in advance for year three (even though you haven’t submitted accounts yet), and your income for year four isn’t taken into account until year five.
Which means if in year four (where I am now) a global financial crisis should hit, for example, and the value of your income plummet by 30% thanks to the exchange rate, for example, then you’re righteously stuffed.
This is where I am – and while I have no problem with the philosophics of paying social security, the way in which it is levied makes it almost impossible to plan effectively. I am now staring at the reality of a negative business cashflow from now until November 2010 – when the government should refund a wad of cash based on my final 2009 earnings.
That’s why I’m playing the lottery.