What is the pay-as-you-go income tax payment option? Is it a good choice for self-employed professionals? How do you know if you have opted for the pay-as-you-go option? What tax options are available to microbusinesses? This article will answer your questions about the different income tax regimes for microbusinesses and look at the specifics of the pay-as-you-go option, including how to take advantage of it and the steps you need to take to ensure you are compliant.
What’s in this article?
- What is the pay-as-you-go income tax option?
- What is the difference between traditional taxation and the pay-as-you-go option?
- What are the rates for the pay-as-you-go option?
- Do you still need to file an annual income tax return under the pay-as-you-go option?
- What conditions do you need to meet in order to benefit from this regime?
- What are the benefits of the pay-as-you-go option?
- How do you opt for the pay-as-you-go option?
- How do you stop the pay-as-you-go option?
- How do you file your return under the pay-as-you-go tax regime?
What is the pay-as-you-go income tax option?
The pay-as-you-go income tax payment option is an alternative to traditional taxation for microbusinesses. With this option, tax payments are calculated on the basis of the exact amount inflows, on receipt. The applicable tax rate corresponds to the main activity of the self-employed person or microbusiness.
Under this tax system, income tax (IR) is paid monthly or quarterly—depending on the microbusiness’s turnover and the chosen frequency—and at the same time as social security contributions. Urssaf, France’s collection office for social security contributions, is responsible for collecting the tax on behalf of the Direction générale des Finances publiques.
What is the difference between traditional taxation and the pay-as-you-go option?
Microbusinesses are automatically subject to traditional taxation (also known as the “common law regime”), a tax regime that requires them to file an annual tax return using form 2042 and its annex, form 2042-C-PRO. The 2022 forms can be found via these links; the 2023 forms are not yet available.
Businesses subject to traditional taxation benefit from a tax deduction applied to their annual pretax turnover, which varies according to the type of activity carried out:
- 34% of turnover for self-employed activities
- 50% for business services
- 71% for the sale of goods
The deduction reduces the microbusiness’s taxable income, an amount which is then subject to the progressive income tax schedule.
Note: the minimum deduction is €305, unless the activity is mixed. In this case, the deduction cannot be less than €610.
Under the pay-as-you-go option, income tax is declared and paid periodically (monthly or quarterly) to Urssaf. The tax amount is calculated by applying the appropriate tax rate to the business’s monthly or quarterly pretax turnover.
What are the rates for the pay-as-you-go option?
Under this special regime, the applicable tax rate varies according to the type of activity carried out:
- 1% for activities involving the sale of goods or the provision of accommodation (classified accommodation, hotel rooms, etc.)
- 1.7% for business or artisanal services that fall under industrial and business profits (BIC) and furnished rentals
- 2.2% for the provision of services and self-employed activities that fall under noncommercial profits (BNC)
Social security contributions are also applied depending on the professional activity of the business:
- 6% for the rental of classified furnished accommodation
- 12.3% for the sale of goods
- 21.1% for the provision of services and self-employed professions
- 21.2% for business or artisanal services and unregulated self-employed professions
Do you still need to file an annual income tax return under the pay-as-you-go option?
You must still file an annual tax return using form 2042-C-PRO, even if you opt for the pay-as-you-go option. However, you will not be taxed twice: the annual return merely enables the tax office to determine your average tax rate and your reference tax revenue (RFR).
You can fill in the form electronically in the private area of the Direction générale des Finances publiques website. On the line “micro-entrepreneurs who have opted for income tax settlement payments,” you must indicate your annual turnover. You can find out more about filling in form 2042-C-PRO in our article on the subject.
What conditions do you need to meet in order to benefit from this regime?
In order to qualify for the pay-as-you-go option, the reference tax revenue for the penultimate year (N-2) for all persons in the taxable household must not exceed €26,070 for a single person (family quotient), €52,140 for a couple (two portions), or €65,175 for a couple with one child (two portions and one half-portion). The amount increases by 50% for each additional half-portion.
Note: for 2024, you must take into account the reference tax revenue for 2022.
In addition, the previous year’s turnover excluding tax must not exceed the thresholds required for the microbusiness regime:
- €188,700 for businesses selling goods or supplying food to be taken away or consumed on the premises or providing accommodation
- €77,700 for service providers covered by the industrial and business profits (BIC) or nonbusiness profits (BNC) scheme
Finally, you must have opted for the microsocial scheme: a simplified system for calculating and paying your social security contributions (calculated in proportion to your turnover).
What are the benefits of the pay-as-you-go option?
The main advantage of the pay-as-you-go option is that you pay your taxes and contributions in real time, based on your actual income. Your deductions are therefore spread over the year, allowing you to drive efficient cash flow.
What’s more, your payments are predictable: a fixed rate is applied to your turnover, depending on the nature of your activity. This simplified calculation method is particularly attractive for microbusinesses.
How do you opt for the pay-as-you-go option?
To opt for the pay-as-you-go option, all you have to do is contact Urssaf: you must apply on its website by September 30 at the latest. The pay-as-you-go option will take effect the following year. If you want to benefit from these payments as soon as you set up your microbusiness, you need to make an express request to the business formalities one-stop shop by the last day of the third month following the start of your business.
How do you stop the pay-as-you-go option?
The pay-as-you-go income tax option ceases to be available as soon as your turnover or reference tax revenue exceeds the set thresholds. In addition, if you opt for the simplified or normal tax assessment regime, you will no longer come under the microbusiness system, making you no longer eligible for the pay-as-you-go option. It is also possible to withdraw from the pay-as-you-go option: this must be done by September 30 at the latest with Urssaf, so that it can be applied the following year.
How do you file your return under the pay-as-you-go tax regime?
You must submit your turnover declaration online via the Urssaf website every month or every quarter, depending on the frequency you choose. Payments and social security contributions are calculated on the basis of your income. If you have no turnover (i.e., your turnover is 0), please enter the word “néant” (nil) instead of the amount.
To simplify your tax procedures, you can always refer back to this article or use a scalable tool such as Stripe Tax, which gives you detailed reports on your transactions and revenue for the year—no code required. Get started with Stripe to continuously improve your compliance.