France faces a choice - to weigh down its basic auto-entrepreneur business status with more regulation or to make it easier to start up with traditional regimes.
ALL SOLE traders should have simpler ways of running their businesses following the success of the auto-entrepreneur.
France’s simplified business set-up has seen 445,000 take it up in its first 18 months and critics from traditional, more bureaucratic business regimes say it is unfair competition.
After a push to limit the auto-entrepreneur scheme to a maximum three years was defeated by the government, Small Business Minister Hervé Novelli said he wanted to give all sole traders the chance to use its simplicity.
Mr Novelli said: “What I want is for us to be able to procure for them [other sole traders] the same advantages of simplification that we have obtained for auto-entrepreneurs. I am making a pledge on that.
“A lot of artisans tell me ‘if we have the same advantages, then auto-entrepreneurs aren’t a problem.
“If there is competition, it is simply competition through simplicity,” he said in Le Figaro newspaper.
The key differences that have helped the auto-entrepreneur are its ‘pay as you earn’ approach to tax and social charges, along with the ease of registering a business and making declarations online.
Critics say that its rules, which impose social charges and income tax on turnover rather than profit can mean some business people are paying more money to the government than they would on traditional French business schemes.
Novelli has meanwhile said he will examine how auto-entrepreneurs declare their turnover. In future they could be made to declare zero profits and could lose their status, and accompanying social security benefits as a result.
The president for the auto-entrepreneur’s union, François Hurel, said: “There are various people who have gripes with the auto-entrepreneur system, but neither myself nor Mr Novelli can understand why they are moaning about something that is based on simplicity.
“Rather than changing the auto-entrepreneur status let’s look at how we can give its benefits to other business categories.”
The most obvious area would be initial set-up, he said. “We can simplify the system when you start your business by simplifying the forms, not requiring so many documents, and above all by putting all our efforts into making it possible to register over the internet.”
Other areas, such as extending the system of social charges on turnover would be less easy to adapt and not well-suited to some larger businesses, he said.
Mr Hurel said he did not understand the opposition to the auto-entrepreneur status from groups such as the building trade body Capeb, who represent traditional artisans.
“When you look at the reality of the figures, auto-entrepreneurs in the building trade last year made just 0.06% of the turnover – how are people making that amount causing unfair competition?”
He added that a study by accountants had shown that on average most auto-entrepreneurs paid a comparable amount of social charges to other small business types.
One of the leaders of Capeb, Sabine Basili, said opposition to the auto-entrepreneur was likely to increase as the economy recovered.
“In a period of economic crisis we aren’t going to oppose people – for example the unemployed – from trying to do something to give them a better standard of living,” she said.
However, like many representatives of artisan trades she believes more regulation is needed in areas such as qualifications and accounting.
“Nobody checks up on them,” she said. The body believes the combination of the fixed-rate social charges and exonerations from the fees for joining chambers of commerce (compulsory for traditional regimes) add up to financial advantages.
However Ms Basili said they would be “attentive” to any ideas for simplification for other businesses.
“In the past when simplifications have been proposed there have also been new restrictions – for example, if Mr Novelli offered a simpler way of paying social charges we would want to make sure it did not come at the cost of worse pension or social security rights.”
She added that some ideas from the auto-entrepreneur might remain suited to initial start-up rather than a long-term business taking its responsibilities seriously – a reason to limit the scheme to three years. A certain level of constraints and regulation was needed. “Some things could be simplified, but we don’t want the system to be simplistic,” Ms Basili said.
Almost half a million have opted for scheme
LAUNCHED on January 1, 2009, the auto-entrepreneur business status was intended to encourage people to start businesses by lightening administration – and 445,000 have taken it up.
Though it is still useful to consult an accountant about all options, many people set up and manage this new business kind on their own. Most sign up via the internet, though you can apply with a simple form from a chamber of commerce or trade.
Initially another plus was that you no longer had to register at a local chamber of commerce, as traditional businesses do, however this is now not the case for those going into artisan trades.
People using this new status should have a turnover below certain thresholds (e80,300 for sales, e32,100 for services) and do not charge VAT (this is the same as for people with a traditional micro-entreprise, of which the auto-entrepreneur is a simplified version).
However you can start this way and move to a more complex set-up if your business outgrows the scheme.
The set-up has an innovative method of paying business social charges (towards health, retirement and other social security rights).
Payment is made on actual earning, as opposed to other business regimes which use estimations and balancing payments. You pay a fixed percentage of turnover, monthly or every three months.
This simplifies cash-flow, especially if your aim is just a part-time activity to boost a pension or salary. The same method of payment is available as an option to pay income tax, and those taking the latter up also get a temporary exoneration from other business taxes.
Is it the right regime for you?
THE new system has allowed many businesses to be created which would otherwise have stumbled with the onerous system of paying first and second year social charges based on estimated profits, with significant cashflow disadvantages in the first few months, says accountant Joanna Reintjes, of AFA Expertise.
The auto-entrepreneur is pay-as-you-go, so if you started a new business on May 1, 2010, but do not make any sales until July 12, you only pay social charges on those sales with the quarterly return for July to September, due in October.
However the main principle is that if you have a heavy investment in equipment, plan to employ staff or expect significant mileage claims, the traditional method of registering your business (under the réel accounting regime) may give a better result and mean less to pay in social charges.
The auto-entrepreneur is a sensible solution for small businesses starting out for its simplicity and online business registration, but you have to be aware of your real expenses.
Here is example, based on a typical consultancy:
Annual sales consultancy sales €27,000
Depreciation allowances €2,750
Mileage claim €4,000
Other business expenses €8,740
Net profit €11,510
-- Social charges under a traditional business regime would be in the region of e4,400 (about 38%) for this kind of business. For artisans and commerce they are around 46%.
As the auto-entrepreneur regime is charged on a percentage of turnover and not profit and you cannot make deductions, you would pay e5,751, so in this example – you pay more.
-- In cash-flow terms the benefits of the auto-entrepreneur while starting up disappear if you quickly increase your turnover and only apply up to a ceiling.
Under traditional regimes you pay estimated charges based on e7,000 profits in the first year. So in this example you would actually pay more under the auto-entrepreneur in the first year than under the classic regime where you would have around e2,700 charges.
Under traditional regimes you will have to make up balancing payments over the following two years.
-- Any business where you employ staff is not good for an auto-entrepreneur, as you have to pay social charges for them but the auto-entrepreneur system does not allow a deduction for these costs.
-- If you do not declare sufficient sales or profits then you may not pay enough social charges to qualify for a state pension on that year’s contributions.
Suitable businesses could include a computer consultant working at home or any other “home” type business where there are not many expenses - eg. a salesperson selling advertising space by phone or internet.
An estate agent with high mileage or a consultant making regular overseas trips probably would not want to be under the regime as they often have high mileage.
It may be suitable for a gite business where there is no mortgage finance (but if there is, then you can make a deduction against profits for mortgage interest) however if there are a lot of fixtures and fittings you can have depreciation allowances on these, and there is even an option to deduct the cost of the building itself from profits (typically spread over 40 years).