To pay income tax, micro-entrepreneurs can opt for the "versement libératoire", which is calculated according to a fixed rate depending on the activity carried out. This rate is applied to monthly or quarterly sales. The amount of tax due is then deducted from each tax return, smoothing out expenses over the year. Click here for a sample letter to activate this option.
How does payment in full discharge of income tax work?
The "versement libératoire" is a method of paying income tax, similar to a withholding tax.
The Urssaf is then responsible for collecting the income tax, in the form of a percentage applied to the microentrepreneur's income at the time of payment of his or her social security contributions, which are paid either monthly or quarterly, depending on the option chosen when the microenterprise was set up.
The amount of tax varies according to the microentrepreneur's income, or more precisely, his or her sales. The tax rate varies according to the nature of the activity. For example, a rate of 1% applies to businesses selling or providing accommodation; the tax rate is 1.7% for businesses providing services, and 2.2% for businesses generating non-commercial profits.
When the microentrepreneur has not generated any sales, no deductions are made for income tax or social security contributions.
On the other hand, if you have declared a turnover, you will have to pay social security contributions in addition to the tax in the form of the payment in full discharge. These amount to 22% of sales for self-employed activities and services, and 12.8% for sales of goods, take-away food, food for consumption on the premises, objects and accommodation.
Microentrepreneurs who have opted for payment in full discharge must still file an annual tax return. The amount declared is not taxed, which would mean paying income tax twice, but enables the tax authorities to establish the reference tax income, which serves as the basis for calculating the household's average tax rate.
Who is eligible for the payment in full discharge?
Only microentrepreneurs whose income is below a certain threshold can apply for the option to pay in full discharge.
This threshold is reviewed each year, and is determined for one share of family income. Before writing their letter requesting the option to pay in full discharge, microentrepreneurs should therefore check that their reference tax income for the year N-2 is below a certain ceiling. The ceiling is increased by 25% for each additional quarter of a family quotient share, and by 50% for each half share.
As an indication, in 2020 this ceiling was 27,519 euros for one share of family quotient, i.e. for a single person, on 2018 income.
In addition, sales for the previous year must not exceed the thresholds set to qualify for the microenterprise tax regime, i.e. :
- 176,000 for companies selling goods and foodstuffs or providing accommodation;
- 72,500 euros for companies providing commercial or craft services, and for the self-employed.
These thresholds are revised every 3 years.
How can I benefit from the payment in full discharge option?
If you are setting up a micro-business, you must apply for the option to pay income tax in full discharge at the time of setting up, or no later than 3 months after you declare that you are starting up your business, i.e. by the last day of the 3rd month following the creation of the micro-business.
If the request is made when the business is set up, the procedure is very simple: on form P0 PMB, if the business is a commercial or craft activity, simply tick the box corresponding to the option for payment in full discharge of income tax, in the "Tax option" section.
You can also apply for the option to pay in full discharge during the course of your business, even if it has already been in existence for several months or years. In this case, the request must be made before September 30 of the current year for the payment in full discharge to apply from the following year.
The microentrepreneur must write a letter expressly requesting this option, and send it to the Urssaf if he/she is self-employed, or to the Caisse de sécurité sociale des indépendants.
Should I opt for the payment in full discharge option?
It all depends on the income generated by the microentrepreneur's activity, and on his or her personal situation. If they are not taxable, this option is of little interest, as they become taxable from the first euro of monthly or quarterly sales declared.
If your business is already taxable, there's no other solution - since each situation is unique - than to run a simulation comparing the amounts deducted according to the option chosen, i.e. traditional taxation or payment in full discharge. All factors must be taken into account: sales figures, the number of tax units and the income of other household members.
The payment in full discharge offers a number of advantages, not least of which is the possibility of smoothing out tax over the year, and having a real-time view of the sums due, which avoids unpleasant surprises at the time of the annual declaration.
Another advantage is that tax varies according to sales. Unlike monthly instalments, where the amount is fixed and defined in advance, payment in full discharge adapts to cash inflows, again avoiding unpleasant surprises and payment difficulties.
How to terminate the payment in full discharge?
Microentrepreneurs can choose to end their option for payment in full discharge, either by choice, or because they have exceeded the sales thresholds that qualify them for the microentreprise tax regime, or because their reference tax income for the year N-2 exceeds the ceiling set by the tax authorities.
If they choose to end the payment in full discharge, they must write a letter denouncing this option and send it to the Caisse de Sécurité Sociale des Indépendants, or to Urssaf if they are self-employed, before September 30 of the current year.