The Hollande government said experiments on ‘tax at source’, where companies collect income tax directly from workers, would start this summer with changes brought in from the start of 2018.
In his election campaign, President Macron backed ‘tax at source’ but said he did not want it rushed through as problems would be identified in testing and he did not want confusion. He also called for changes in social charges, with some vanishing.
Prime Minister Edouard Philippe announced a year of testing for impôt à la source from January 1, 2018 with problems found and fixed before it is introduced from January 1, 2019. He said the reform as proposed was very complex. He wanted a simpler way for employers, and especially small businesses, to apply it.
Another reason may be that getting rid of some social charges could give a quicker boost to pay, with some calculations showing a €533 annual boost to a person on €3,000 gross a month.
Plans for a ‘tax-free year’ année blanche in 2017 have been carried over to 2018 but do not mean no tax will be paid then as 2017 revenue will still be taxed in 2018. Earnings in 2018 will be exempt and tax at source will start in 2019.
Tax at source is calculated on taxable income after social charges and other expenses. Employers and pension funds already calculate this for the Déclaration Annuelle de Données Sociales. The tax office will send firms a tax code for the employee’s pay.
Tax forms will still be filled in each year as the earnings scales and family part system used to calculate the tax band will be maintained, as will the taxing of households and not individuals.
This question was answered by Olaf Muscat Baron who is a Fellow of the Chartered Association of Accountants UK, a French expert comptable and an International tax advisor. He is the principal accountant of Fiscaly, an accountancy firm based in the Dordogne.
See www.fiscaly.fr or call 09 81 09 00 15