Bob the builder, Bill and Ben the gardeners, Daisy the maid, Miss Mop the cleaner: met ’em all. No problem, cash is fine, cheaper for all of us, no tax, no social charges; easy come, very much easy go. But what are the consequences of being caught for our “likely lads” (and lasses)? “No worries, I’ll be off, skip the country, they can’t get me …”
But they can. Let me tell you the tale of Rosie the “rep”, who failed to register her business in France, foolishly took cheques into her French bank account and got nabbed by the French taxman. Travail occulte (working on the black) is what the French tax office calls it. Let’s say they calculate that you earned €15,000 in 2006, €15,000 in 2007, and €15,000 in 2008. No registered business, no tax return, and “I’ll just skip the country” if I get caught.
The tax office grants no allowances for expenses if you work occulte. So instead of being a cosy micro-BIC or micro-BNC, or an Auto Entrepreneur in either of these categories, with a net probably below the taxable limit for a single person, you’ll be taxed on the first euro earned and – the killer blow – VAT on all your earnings at a rate of 19.6%. Add on the late payment penalties and sundry majorités and your €45,000 earnings have suddenly found themselves costing you just over €16,000. And that’s a tax bill from the French government, so there’s no hiding place in Europe from that and certainly no coming back into the French tax system again in the future.
And I didn’t mention the consequences for the “employer”: URSSAF will be interested in all the National Insurance (social charges) that haven’t been paid on the so-called “employee” earnings. And then there are the insurance issues if the worker has an accident or damages YOUR property.
None of this is worth it.
Setting up an Auto Entre-prise is so easy that there’s little excuse for not getting registered, but looking at the latest figures from the government one wonders if the AE regime isn’t just a front for more of the above – that being travail occulte.
Staggeringly, 73% of AEs declare no income and the average declared income is only €738 per month. The others are “dormant” (asleep), so the official line goes, but one suspects that the AE status is just a convenient label for legitimising cash workers: “Listen, pay me €20 legally which I’ll declare, but give me the other €180 in cash.”
How long will the government tolerate this? Is the monthly €738 per AE (there are 300,000) worth it? A recent report suggests an AE will be closed down after 8 months of zero returns. Several clients have received letters saying their AE will be transformed into a “micro” business, as they have made no money in 24 months. By definition, the micro will have a forfait of social charges of at least €1500 per year.
Transforming an AE into a SARL: if you see that the upper threshold of income under the AE/micro regime is fast approaching, an obvious next stage is to close down the AE/micro and set up an SARL, or “limited company”. The tax office considers the closure of the AE and the transfer of the “assets” of the AE to a new body as a chargeable event for capital gains. It’s as if the SARL bought the turnover of the AE and, as such, the AE should therefore pay a tax on the gain it has made from this transfer. Certain limits, however, protect the small business in this respect.