Deputy Prime Minister Soraya Sáenz de Santamaría promised more tax incentives this week. EFE
The Government has once again increased the social contributions of the self-employed, despite promises to help the only sector creating new jobs
According to the politicians they are super heroes with a mission to lead the recovery of the economy. The self-employed have a permanent place in the positive discourse of a government full of promises it hasn’t kept. However despite being among those worst hit by the crisis and the growing pressure from the taxman, Spain’s entrepreneurs are proving to be incredibly resistant.
2014 was going to be their year: the beginning of the recovery of the economy and the year when finally they would not have to pay value added tax (IVA) on unpaid bills. They were also due to see their income tax reduced from 21 to 19 per cent as the Minister Montoro announced. However this last promise has been postponed for another year and the IVA relief is likely to come to little due to pressure from big clients, according to associations and consultants. And to make matters worse 2014 has begun with unexpected increase in social security contributions, one of the most difficult financial hurdles for professionals.
Nevertheless their numbers are increasing. At the end of November 2013 in the province of Malaga there were 96,953 self-employed workers (the latest figure published by the INSS - National Institute of Social Security). These are 4,440 more than at the beginning of last year. The Government puts the increase down to the 50-euro flat rate for the new self-employed, but the experts put it down to people seeing working for themselves as the only way to escape unemployment.
However the total figures do not reflect the success rate of these new ventures. In Malaga an average of 70 self-employed workers left the register every day in 2013, although, they were outnumbered by the 27,883 new contributors in the first eleven months of the year.
Associations in the sector believe that the increase in new entrepreneurs will continue in 2014, but warn that the new social security rates will slow down the growth. The minimum monthly quota (paid by 80 per cent of self-employed workers) has gone up by two per cent from 256.72 euros to 261.83. The maximum quota has gone up by five per cent to more than 950 euros a month. The greatest increase, however, affects those with more than ten people working for them and who are the administrators of a company. Now they can no longer benefit from the self-employed regime (known as the RETA - Régimen Especial de Trabajadores Autónomos), but have tojoin the ‘general regime’. This means an increase of their monthly contribution from 261.83 euros to 313.34.
The Government justifies this latter change by saying that it makes no sense for an employer to be contributing less than his employees. However business associations claim the measure will have a negative effect on the creation of jobs as many will think twice about taking on an eleventh worker. They accuse Mariano Rajoy’s government of bringing in the measure “through the back door”, as it appeared without warning in the decree that extended part time employment options.
More flexibility needed
According to the CEAT (Provincial Self-Employed Association), not only is it necessary to reduce the social security contributions in general but also to make the regime more flexible, for example, allowing them to contribute by the hour.
Andrea del Valle, who co-owns a design studio in Malaga believes that the ideal situation would be to establish the quota “according to the turnover of the business”.
Antonio Lucena, who set up his own accessories business two years ago said: “It’s unfair that every self-employed worker has to pay the same to the Social Security, whether they make a hundred or a million euros. And that you have to pay even before your business starts to make money.”
Neither have the self-employed had good news this year as far as income tax (IRPF) is concerned.
IRPF is still “through the roof” for professional activities, said Natalia Sánchez, the secretary general of CEAT. In 2012 the rate went up from 15 to 21 per cent.
“This was supposed to go down to 19 per cent this year but in the end it has stayed the same,” she said.
To put numbers to their complaints, entrepreneurs point out that after paying the taxman and the social security, a self-employed worker who invoices for 1,000 euros, ends up with no more than 500.
Another on-going problem for small business owners is that until this year they have had to pay value added tax on their bills issued even before they are paid. The ability to pay the tax only when the payment has been received was one of the star measures brought into force by the government.
However according to the National Federation of Associations of Self-Employed Workers (ATA) barely 20 per cent will benefit from the measure. The organisation claims that big firms are warning their suppliers that they will stop using them if they apply the measure as this will mean they can no longer claim back IVA on unpaid bills as they have been doing.
Another measure the government is accused of bringing in on the sly at the end of last year will cut workers’ salaries and increase employers’ expenses. From now on extra sums added to salaries to cover transport and other expenses will be included in the calculations to establish social security contributions. Before these amounts were exempt. Now for an 80-euro extra on the wage slip the worker will have to contribute an extra five euros and the employer an extra 24.
Companies and unions have criticised the measure that the government defends as part of a plan to “benefit stable employment”.