The self employed will see big changes in 2018

Big changes are coming for the self-employed in 2018, after the Spanish Senate approved a new law regulating this category of worker.

Called the Ley de Reformas Urgentes del Trabajo Autónomo, the new law is a product of the PP & Cuidadanos parties, although it has received broad cross party support. It will affect the 3.2 million autónomos (self employed) workers across Spain, and is expected to act as a “shot in the arm” to these hard working people.

The new law introduces 18 major changes to the fiscal regime under which the self employed work. Eight of these changes will take effect on January 1, 2018, because they have to be included into the state budget for the new year. The other ten will take effect once the definitive version of the new law is published in the State Gazette.

Measures taking effect on January 1, 2018

  • Flat rate social security payments of just €50 a month for new workers.

Those newly registered as self employed will be able to pay a flat rate social security contribution of just €50 a month for the first year (up from the current limit of six months). Those who currently qualify for the €50 a month payment will see their discount period extended to a year. For the first time, anyone who returns to self employment after having de-registered for more than two natural years will also qualify for the flat rate once again.

Men under 30 and women under the age of 35 will enjoy this discount for three years, instead of the default one year introductory period.

Note that additional contributions may be applicable above and beyond this base “flat rate” contribution, depending upon your sector and level of income, and what level of social care you want to pay into.

Contact Cervantes Alarcón Consulting to find out exactly what you should be paying.

  • Help to start again

In order to reduce the financial cost of starting a new venture, entrepreneurs starting a new business can opt-in to the introductory regime if they have not done so in the previous three years.

  • Additional help to keep the venture going

In cases where the additional social security payments could damage the future of a business, the government will help by off-setting part of your social security payments once the first year is up. After paying the flat rate of €50 / month for the first year, the government will in some cases pay 50% of your social security contributions for an additional six months, and then 30% during a further six months.

Additional help is available for the handicapped, victims of terrorism or gender violence. If qualifying people want to pay a higher rate of social security contribution during the first year then the government will pay 80% of their contribution above the first €50.

  • Help to hire staff

The autonómo will no longer lose access to the flat rate of tax if they hire staff. In addition, if the contract is of unlimited duration, the government will pay the initial social security costs of the new hire. This is a medium term measure to get people hiring. The hiring of family members is for the first time permitted but is a special case (see below, hiring of family members).

  • Reduction in the penalty cost of not paying social security contributions

The penalty for not paying your social security payment has been slashed in half for the first month of nonpayment, down from the current 20% to 10%. However, once additional months have been accumulated the penalty returns to 20%.

  • Home offices

Autonómos who work from home can now deduct reasonable costs. Up to 30% of their utility bills (water, telephone, electricity, gas) can be deducted from their IRPF income tax, although they will have to prove that their home is being used as a place of work. Personal vehicles used for business can have up to 50% of their fuel cost added as a business expense, although the Tax Office has already been asked to clarify exactly how this will work.

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  • Food costs

The self employed will be able to claim as a business expense a daily food limit of up to €26.67 when they are working in Spain, and €48 a day when working abroad. The expense can only be claimed when food and drink is purchased in a food serving establishment and an electronic invoice provided. The expense amount is doubled when the worker can prove they are spending the night away from their home on business. Again, Hacienda will have to clarify exactly how this will work.

This article explains how using the right to feed workers is a good way of reducing salary costs.

  • Greater flexibility

The self employed will now start to pay their contribution from the day they register as autonómo. Currently they have to pay the entire month, even if they did not register until the end of the month.

Autonómos will be able to register and de-register up to three times a year, to give greater flexibility to those working in seasonal work.

Autonómos will also be able to change their base level of income once a quarter, in order to adjust their social security contributions to the real amount they expect to be earning. This should provide them with greater liquidity, as they will no longer have to pay excess into state coffers and ask for a refund later.

Measures that will come into effect once published in the State Gazette

  • Automatic refund of excess contributions.

Currently, autonómos who also have a salaried position pay double contributions and have to ask for a refund on their tax return. The tax office will now automatically calculate excess payments and return the difference within a reasonable period.

  • Change in the way base level of contribution is calculated

Currently, the base level of contribution for business owners or administrators is set by the annual increase in the SMI (average inter-professional wage rate). From now on, the base rate will be negotiated with the two federations who represent these types of workers – ATA and UPTA – and will be based on variables set in the State Budget (see also social dialogue, below).

This should prevent such anomalies such as the recent 8% jump experienced by these professionals in their social security contributions from happening again.

  • Protection against travel accidents

Autonómos who have an accident travelling to, during or from work on board any type of transport will now have social security protection, as happens with salaried workers. However, they will have to be paying “professional risk” contributions on their month social security payments in order to claim.

  • Draw a pension but keep on working

Professionals who want to keep on working after the age of retirement will now be able to do so and draw a complete pension. Currently, people in this situation can only draw a half wage and half their base pension.

The intention is that the self-employed are no longer forced to retire and can keep their businesses functioning for as long as they want to, hopefully continuing to provide employment to staff.

  • Flat rate tax for new mothers

Women who return to self-employment after giving birth (or adopting / hosting an infant) will have access to the flat rate €50 a month contribution for their first year of work. In essence, the measure means that new mothers are exempted from the two year waiting period, as mentioned above.

  • Social security exemption for new parents and carers

New parents (or those who have adopted / hosted an infant) will have their social security contributions suspended during their maternity and paternity leave.

Carers who find themselves having to look after a dependent family member will have the right to a 100% exemption on their Social Security contributions during the period of care.

  • Help to employ family members

In recognition of the reality of the Spanish labour market, the self-employed will be given assistance to employ family members. When they are hired via a contract of unlimited duration, they will have the same right to have one year’s worth of social security contribution underwritten as any other worker (see Help to hire staff, above).

However, this right is lost if the employer has extinguished any contract in the twelve months prior to the hiring, or if any firing has been declared improcedente by the Labour Authority during the same time period.

The employed must also keep the same average number of staff for six months after hiring the family member.

These measures are to prevent an employer from replacing a member of staff with a family member.

  • Training

The self-employed will now have the same training rights as salaried workers, including access to training funds and grants.

  • Social dialogue

The main organisations representing the rights of the self employed -such as ATA and UPTA – will now be given the consideration of “being in the public good”. This allows them a seat at work negotiations alongside the main national unions or business federations, and will give this sector a voice in collective discussions regarding their political future.

In summary

This law is the biggest shake-up to hit the self-employment sector since the 2007 modification of bases, when the Estatuto de los Trabajadores Autonómos was approved by Parliament.

For the first time, the national government has recognised that the income of the self employed is not fixed but changes from time to time, and that there is no “one size fits all” social security regime for this collective.

The government hopes the new law will help to attract more people into the uncertain field of being self employed by reducing administrative costs and being more flexible with social security contributions. The help to hire new employees will also help shake up the employment market and allow the self employed additional help to grow their business.

Cervantes Alarcón Consulting can help anyone who wants to become self employed, or who is already self employed but paying too much for their monthly accountancy costs. Contact us today to discuss how we can help.

Maria Luisa

María Luisa Cervantes is a chartered accountant who graduated from the University of Granada in 2002. Founder of Cervantes Alarcón Consulting, she is an experienced accountant and financial advisor who is a member of the Almería guild of economists. With more than 15 years of experience in business administration and international trade, she is also a subject matter expert in the UK - Spanish bilateral agreements which cover the rights of expats to live, work and retire in Spain.