Social charges on gîte income
Your questions answered by our finance expert, Hugh Macdonald
I AM totally confused. I started my gîte business in 2005 an adviser at my tax office completed the formalities for me and under her guidance I registered as a micro enterprise and submitted the H1 form [a declaration enabling the calculation of local taxes].
She said I would have an expense deduction of 71 per cent and a ceiling of 76,000. The next year I also turned to her to make sure my tax declarations were correct. After that I followed the same form-filling pattern.
It now turns out errors were made when I set up, notably a box relating to social charges was not filled in. I am expected to find 2,428 in six payments between now and August 2012 and that only clears me to 2009 and it then appears that I have to pay around 800 per year thereafter in social charges.
My gite business is more than just property rental: I provide changes of linen and towels, give local advise, book restaurants etc.
My business is very small and my only source of income. I feel my world is crashing around my ears. T. [tax office documents supplied giving extra detail].
This area is often misunderstood. In tax terms, a gîte is supposed to be a self-catering set-up and, as such, it is taxed as you mention. As gîte-letting does not theoretically generate work in the sense of providing a service to
the tenants, the only social charges for which you are liable are a standard 12.1 per cent charge, which is that charged on investment income.
However, if a service is provided you are considered a commercial entity: allowances for expenses reduce to 50 per cent, and the “social charges” usually increase so as to cover pension, healthcare etc.
The cost is about 30 per cent of assessable income and in any one calendar year they are based on the assessable income of the previous year. In the first two years of your activity however you effectively pay “on-account” at a set fixed rate, and may have balancing payments to make later.
However, where rentals are seasonal only, not annual, it is customary to continue levying the social charges as if the income were investment income.
The social charges and time for payment you quote seem to be correct and the social charges and taxes in this case seem have been based on the income being treated as an investment, which attracts the 71 per cent expenses deduction mentioned.
With regard to the charge of some €800 which you say you will now have to pay each year, I assume you told the tax office that you are providing services, so they have probably reduced the allowance for expenses to 50 per cent which, given that your gross income is around €14,000 would, after the new allowance, leave some €7,000 which, when assessed to the social charges at 12.1 per cent, would amount to €850/year.
Note that in the case where a gite owner is not providing services they should declare their income in box NO on the 2042C tax form, whereas if they are providing a service of any kind, then they should use box NP.