This new business status continues to be controversial, but the government seems intent on easing regulations and social security contributions on small business owners.

The ‘auto-entrepreneur’ status has been widely adopted by many new business start-ups, but it remains a status that has yet to win unanimous support throughout the country.

Last month several French senators deposited a bill in the French Parliament to limit its use to three years duration, and for all auto-entrepreneurs tobe required to make a declaration of their activity (turnover) for each accounting period, even if they had made no sales.

Supporters for restricting the status to three years for everyone argued that auto-entrepreneurs in a growing business would under-declare their earnings each year if they believed they were going to exceed the turnover limits that are imposed on this business status.

They also considered that if every auto-entrepreneur was required to formally declare even a 'nil' turnover for an accounting period it would make it easier for the social security collections agency (Urssaf) to control abuses of the system.

The proposal failed to receive the backing of the government, and it was finally rejected. Nevertheless, the idea gathered a lot of support, an indication that many politicians have misgivings about the statute.

Qualifications Needed

Pressure for a toughening of the regulations has been coming primarily from the Union professionnelle artisanale (UPA), as they consider auto-entrepreneurs have an unfair competitive advantage with other forms of business status.

Indeed, at the express wish of the artisans, last year the government introduced a décret that requires any auto-entrepreneur proposingto set upin one of the 'regulated' artisanal activities to show proof of qualifications or experience.

Only those proposing to undertake one of the regulated artisanal activities on a complementary basis to that of their main activity do not need to register.

Such persons include those either in receipt of a retirement pension or receipt of a salary, or those who exercise at least one other non-artisanal business activity, provided in each case the income from the artisanal activity is less than half of the total of that received from elsewhere.

The building trades are one of the regulated activities.

VAT Status

While most commentators accept that there should be the same entry rules for all, fewer accept that auto-entrepreneurs have a competitive advantage over other forms of business status.

One of the principal reasons for such a view is that auto-entrepreneurs cannot charge VAT to their clients, and neither can they recover VAT on their materials. This inevitably means they have to cover the 19.6% charge for materials in their prices, something that does not apply to someone who runs their business through a VAT registered limited company.

Moreover, as auto-entrepreneurs are charged social security contributions on the basis of their turnover (not their profits), in some cases the use of this type of structure could actually penalise the business against competitors.

Employment Fraud

More generally, there are widespread reports of companies demanding employees who are on fixed term contracts to become auto-entrepreneurs at the expiry of these contractsif they wish to continue to work with the company.

By insisting such staff become self-employed it relieves them of employer social security and other related obligations. The practice seems to be most widespread in the hotel and restaurant trade.

So far, the government is playing down the extent of the problem, but as such abuses inevitably result in a loss of social security contributions, a crackdown seems likely.

If necessary, Ursaff can determine that a real contract of employment exists, and grant a self-employed personemployee status.

Social Security Contributions

Nevertheless, the government itself seems to want to do all it can to encourage more people to set up their own business.

In January they extended the period someone making no sales could maintain auto-entrepreneur business status from one to three years.

At the present time, unless you opt for the régime micro-social form of taxation as an micro-entrepreneur, you are obliged to pay a minimum level of social security contributions, irrespective of the performance of your business.

It now seems that this may be about to change.

The Minister of Small Business Hervé Novelli has stated that he considers the level of minimum contributions to be disproportionate in the case of those with a small turnover or profits, and wishes to ease the burden upon them.

An interdepartmental working party has been established and the Minister has announced that it is planned to introduce the new measures in 2011.

Turnover Limits

Several thousand auto-entrepreneurs are also reporting that they have received a letter from Urssaf, the French social security contributions collections agency, removing their status as an auto-entrepreneur.

This is because they had exceeded their permitted turnover allowance. This is because the maximum allowance (which varies by type of business) is applied on a pro-rata basis over the year.

On an exceptional basis, the government has announced that those auto-entrepreneurs who have exceeded their turnover limit will be reinstated, and it seems that this will become a permanent rule for those in the first or last year of business. A proposal to change the regulations to this effect is likely to soon be deposited in the French parliament.