With auto-entrepreneur social security charges having been increased this year, does it make sense to opt for another business tax status ?

As we reported in a recent Newsletter, this year auto-entrepreneurs face an increase in their social security contributions (cotisations).

The aim of this reform is to align auto-entrepreneur charges with the ‘régime réel’ used by other business owners, whose charges (incidentally) have also been increased this year.

Such a reform has been fraught with difficulties as auto-entrepreneurs pay a single percentage charge of their turnover, whereas those in the régime réel pay multiple charges based on their net profit.

The level of the increase for auto-entrepreneurs is between 2 to 3 percentage points on the existing rates, depending on the nature of the business, as follows:

These changes amount to an increase of around 16% in the level of cotisations.

In addition, since 2012 auto-entrepreneurs also pay a small charge each month called the contribution à la formation professionnelle, as do other business owners. The rate of this charge varies by type of business activity; it is 0.1% for BIC Sales, 0.3% for BIC Services, and 0.2% for BNC.

As a result, the cumulative charge payable by auto-entrepreneurs in 2013 is as follows,

Now, although no allowance for costs is granted in the determination of their cotisations, for the purposes of calculating income tax, a cost allowance is used.

The level of this allowance depends on the nature of the business activity, as follows:

Accordingly, if these allowances were implicit in the rates of charges applied to auto-entrepreneurs, it can be seen that the theoretical charge amounts to up to 50% of the net result.

Thus, an auto-entrepreneur running a BIC Services based business with a rate of cotisations of 24.9% and a cost allowance of 50% theoretically pays nearly 50% in charges – 24.9%/50% = 49.8%.

It is a very similar rate for those running a BIC sales service where the cotisation rate is 14.1%, with an allowance of 29% giving a charge on (theoretical) net profit of 48% (14.1%/29%).

These rates are actually in excess of the circa 46% in cotisations paid by those in the régime réel on their net profits.

Only those in the BNC would appear to pay a more modest lower theoretical rate of 32.6% (21.5%/66%).

So in determining which business tax status to adopt you need to consider the level of your actual costs, including depreciation charges on capital investment. If these costs are greater than the allowances granted under auto-entrepreneur status, then you would be better off adopting the régime réel.

Before you do so, you should take professional accountancy advice, and also consider the other benefits of auto-entrepreneur status, such as:

• the exemption for three years from the local business rates;
• the absence of cotisations where there are no actual sales, and no minimum payment;
• the simple accounting procedures, and the fact that it is not ordinarily necessary to engage an accountant.

There are maximum turnover limits for an auto-entrepreneur, and if you exceed these limits you are required to change your business tax status.