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PAYE tax system introduced in France next year?

I have heard that the French government is introducing a PAYE tax system next year. What’s prompted the change? J.N. 

You are correct. The French government has for some years been considering changing from payment on account to a collecting income tax. France is the only EU country with a payment on account system. This is a very large reform and hence there has been a lot of hesitation. I hope to cover the repercussions of this change in future articles but let us start by understanding what has motivated the reform.

Up until this year (2018), if a household had income tax to pay in the previous year’s assessment, then a payment on account for the following year would also be requested. A balancing adjustment would then be requested or refunded once the annual avis d’impôt was established. The payments on account could be made monthly or, more commonly, in three instalments.

A disadvantage of this system is that taxpayers whose financial circumstances change have to wait until the next avis is issued before the tax adjustment can be made. In certain cases this could penalise a household which is due to pay less tax, such as after a divorce, birth or death that has affected the foyer fiscal.

There are two other factors that have motivated this change. One is that France is technically a ‘year behind’ on collecting its income taxes. (Although, given that taxpayers do currently pay on account, this is not completely true.)

Secondly, as the vast majority of taxpayers in France are employees, a PAYE system should make household budgeting a little easier. The monthly pay cheque would effectively show taxpayers their ‘disposable income’ (i.e. after all taxes have been paid). This could be true to some extent if the government succeeds in removing the taxe d’habitation – but, as we all know, there remain a number of other taxes, including VAT (TVA).

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 or call 09 81 09 00 15

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