Payment in full discharge of income tax works like a deduction at source. Each time you declare your sales, a percentage, calculated on the basis of a fixed rate established according to the activity carried out, is deducted in addition to social security contributions. It is possible to terminate the payment at source option by sending a letter of termination to the relevant CFE.
What is payment in full discharge of income tax?
Payment in full discharge is an income tax payment option reserved for microentrepreneurs.
Micro-entrepreneurs can choose to opt for the payment in full discharge option when setting up their business, or during the course of their activity, by sending a letter to their local business formalities center, or to the Social Security fund for the self-employed (formerly RSI).
There are two options for settling income tax: annual declaration followed by payment in instalments, or payment in full discharge. This option is similar to a withholding tax, in that the microentrepreneur is deducted a percentage of his income tax each time he pays his contributions to Urssaf.
This does not exempt you from filing an annual tax return, which you must do online at Impôts.gouv.fr. However, this declaration does not give rise to any deductions, as his tax is already paid in real time, together with his monthly or quarterly social security contributions, depending on the option chosen when setting up the micro-business.
The tax rate varies according to the nature of the business. It is 2.2% for microenterprises making non-commercial profits, 1.7% for those providing services, and 1% for microenterprises specializing in housing supply or sales.
How can I benefit from the payment in full discharge?
Payment in full discharge is an option subject to income conditions. It is reserved for microentrepreneurs whose reference tax income for the year N-2 does not exceed a certain ceiling, regularly revised, increased by 50% for each additional half-share, and by 25% for each additional quarter-share.
Microentrepreneurs who meet this criterion must submit a letter of request to their business formalities center before September 30 of the current year. The payment will be made the following year. Applications can also be made online.
Why write a letter to cancel the option to pay in full discharge?
It is possible to opt out of the payment in full discharge scheme by writing a letter of termination of the option and sending it, before September 30th of the current year, to the relevant business formalities center, or to the Social Security fund for the self-employed. The option will expire the following year.
In some cases, the payment in full discharge may be automatically terminated. This is the case when the microentrepreneur's reference tax income for the year N-2 exceeds the threshold set for one family quotient share, or when the microentrepreneur's sales exceed the ceiling enabling him/her to retain the microentreprise regime.
To qualify for the microenterprise scheme, annual sales must not exceed :
- 176,200 euros for companies selling and supplying accommodation ;
- 72,600 euros for companies providing services and the self-employed.
If a microentrepreneur's sales exceed these thresholds, he or she loses the option for payment in full discharge, but can still remain under the microenterprise regime, provided the threshold is exceeded in only one year.
If sales exceed the ceiling for two consecutive years, you can no longer benefit from the microenterprise scheme, which is then reclassified as a sole proprietorship.
Is it necessary to opt for payment in full discharge of income tax?
The main advantage of paying income tax in full discharge is that you can stagger your payments, making it easier to manage your company's cash flow. What's more, when the microentrepreneur has no sales, he or she pays neither social security contributions nor income tax.
However, this option is not always advantageous. In fact, microentrepreneurs who opt for payment in full discharge become taxable from the first euro of sales received, unlike microentrepreneurs subject to the progressive income tax scale.
Non-taxable microentrepreneurs therefore have no interest in applying for the payment in full discharge of their income tax, since they would in fact become taxable.
It all depends on the entrepreneur's personal situation, the number of shares according to the composition of his household, and the sales generated by his micro-business. If the entrepreneur's business is highly seasonal, it may be more advantageous to retain the progressive tax scale: sales, smoothed out over the year, may not be high enough for the entrepreneur to be taxable. If, on the other hand, you opt for payment in full discharge, you will in any case pay income tax in the months when you receive sales.
It is therefore essential to make detailed calculations before making a decision, in order to choose the most suitable tax payment method.
Microentrepreneurs winding up their business must submit the appropriate form to their local business formalities center, and pay their tax obligations.
Those who have opted for payment in full discharge must declare their latest sales figures, and pay the corresponding contributions and tax, by the end of the month following the calendar quarter concerned.
Micro-entrepreneurs who do not benefit from the payment in full discharge scheme have a maximum of 60 days in which to submit their income tax return, together with a supplementary declaration of their non-commercial or industrial and commercial profits, to their local personal income tax office.