We will review in this article the costs that are common to most freelancers (autonomos) in order to assist you with your business plan.
Social Security Contribution.
This is the first cost to consider.
Self-employed individuals must make a contribution to the social security from the moment of registration.
From 2023, this contribution will depend on the estimation of earnings.
However there is a measure of flexibility to choose the contribution base within a range. This will later serves as reference for future benefits such as:
- Off sick pay
- Maternity or Paternity pay.
See our article: New Autonomo Contribution for 2023
Beside the fixed payment each month, an autonomo acquires the obligation to pay income tax on profit as well as keeping books and submitting reports to the Tax Agency periodically. In most cases too, they will become obliged to collect and pay VAT.
In the following section we will discuss.
- Income Tax
- Book- keeping formalities and reports.
Personal Income Tax
Autonomos trade in their own personal name. That means that the profit obtained in their business is fully attributed to them as earnings.
This being the case, it does not make sense for them to ‘set a salary for themselves’ and ‘leave profit in the company’ as, in reality, all the profit is their salary.
Earnings made as autonomo, along with any other incomes of any kind, are taxed under personal income tax ( IRPF tax) which is calculated yearly.
However, every quarter autonomos need to report their business result until that moment and make payments in advance toward their personal income tax final liability if this result is positive.
The payment that needs to be cleared every 3 months is 20% of the business result.
The business result is the gross incomes minus the business deductible expenses.
- Business result = gross incomes – business deductible expenses.
- 20% of Business Result -> Income Tax to be forwardEd against final bill.
Use the “Estimate your business quarter App” to anticipate your quarterly results.
Then use “Estimate your income tax” App to anticipate your annual bill considering personal allowances and other circumstances.
Besides direct payments of income tax, in some cases one’s own clients are obliged to withhold part of their payment to us in order to pay tax in our behalf. This is called “retentions”.
What expenses can I offset against tax?
Not every business activity is subjected to VAT. Additionally there are types of transactions that are VAT exempted. As you carry out your business you may need to consult with us how a particular transaction is affected by the VAT obligation.
Unlike in other European countries, in Spain there is no VAT allowance for businesses under a given volume of sales. If the activity falls under VAT law the autonomo needs to be registered as VAT operator from the beginning.
Regular VAT system.
In the general VAT system this tax is added to our prices, collected in our sales and then paid back with most of our business purchases. Any surplus in our VAT account will be cleared quarterly filing a tax form.
The quarterly report of our VAT account, whether in surplus to be paid or in deficit to be credited, needs to be sent to the Tax Office.
Understand IVA, Retention and Income Tax.
How to estimate your quarterly result in Quipu
Retailers Tax System.
Retailers, those who sell unaltered items, whether in a physical shop or online, have a particular VAT system for them.
Learn about it in our article: Retailer’s tax system.
In any case, under the Regular system or the Retailer’s one, if you are going to do Business to Business transactions with other European companies you will need to obtain the international VAT registration. Learn about this in our article :
Intra-comunitarian invoice and VAT number.
These ones mentioned so far are not the only VAT systems that there are. Others may be:
Special VAT system for Travel Agencies and Tour Operators .
Special VAT system for electronic transactions and broadcasting.
Book-keeping Formalities and Reports.
Besides the Social Security and Tax payments, there are other parts of the business administration that need to be attended to.
Autonomos are obliged to:
- Issue invoices.
- Keep invoice of each expense.
- Track every invoice issued and received, include their IVA.
- Keep ledgers with business assets and depreciation of their value.
- Send reports on:
- Balance of VAT account.
- Business profit and loss
- Companies with which they have volume of business over 3000€ per year.
- International companies they do business with.
… and many more things depending on each case.
Failing to provide the required information on a request can be costly in fines.
This is one reason why having neat and orderly books is essential.
Besides the mere obligation, a neat business administration can be extremely helpful to save us tons of work and headaches.
At Limit we assist you with all the above mentioned formalities and periodical submissions so that you can concentrate on sales or delivery your service.
Our accounting packages include free business registration, tax presentation, representation before authorities and an all-in-one Invoicing, expense tracking and accounting solution.
You can invoice, control and administer your business activity from one single place with Quipu. This will also help to anticipate tax bills and avoid unpleasant surprises.