New self-employment law: how does it affect you and how much will you have to pay?

MADRIDThe self-employed workers' organisation ATA, linked to employers' association CEOE, has given its approval to to reform of the tax system for the self-employed. The organisation chaired joins UATAE –linked to trade union CCOO– and the organisation UPTA –linked to trade union UGT– which had already announced their support. Now, the text still has to be approved by CEOE's governing bodies, but everything indicates that throughout the morning they will also vote in favour, insiders say.

The reform will come into force on January 1, 2023. It contains structural changes and others in the short term, such as the quotas self-employed workers will pay from now on, which will change progressively until 2025. After months of complicated negotiations, this is the final text agreed by the Ministry of Social Security, under the leadership of José Luis Escrivá, and organisations representing the self-employed.

What will the self-employed pay from now on?

With the new system of contributions based on "real income", the self-employed will be divided into 15 brackets according to their monthly earnings. These brackets will determine whether the contribution they pay is lower or higher: in the bottom bracket will be self-employed workers with an income of under €670 per month and in the top bracket those workers who earn more than €6,000. For 2023, monthly tax bills will range between €230 per month (for the lowest bracket) and €500 per month (for the highest bracket) depending on the worker's net income. In 2024 contributions will be between €225 and €530 per month and, finally, in 2025, the government proposes a range of contributions of between €200 and €590 euros per month. Thus, there will be a progressive reduction in the contribution for workers with lower incomes and an increase for those with a better financial situation.

What does it mean to pay taxes based on net income?

Until now, self-employed workers chose a rate to pay each month regardless of their earnings. With the reform this changes completely and the self-employed will pay according to their net income. The calculation of this net income comes out of the amount of money that the self-employed person invoices, deducting expenses.

Before the reform, most self-employed workers paid the minimum tax and this generated an "anomalous" situation: it also meant they received much lower retirement, maternity or paternity benefits. This is to be reversed by linking taxes to earnings.

Will it be possible to change brackets?

It will be possible to change brackets up to six times a year. This has been done so that the self-employed can decide what they pay to the Social Security according to the economic situation they are going through. They will also have to provide a forecast of their earnings. Later, the Tax Agency will check whether the forecast was met. The Tax Agency will decide if whether the self-employed worker has to pay an additional amount because they have made more money than they forecast or, in the opposite case, should receive a refund.

Who will be eligible for the flat rate?

Workers who earn under minimum wage (€14,000 a year) and have not registered as self-employed with the Social Security in the previous two years will benefit from a flat reduced rate of €70 per month for one year, with no retroactive effects. This means self-employed workers who are currently paying the reduced rate of €60 per month will continue be entitled to it until it runs out.

Will there be more benefits?

Yes, in fact, this has been the most controversial point in the negotiation. While ATA accepted with the monthly payments, the organisation demanded improved benefits for the self-employed in the event that a worker goes through a difficult economic situation. In the end, not only is the "unemployment" benefit which already existed maintained, but it is reinforced. In some cases, for example, it will be possible to take into account the need to cut working hours or a reduction in income