How to work self-employed: tips + instructions
How to work self-employed? After all, the new tax regime is gaining more and more popularity – the tax authorities note that more than 2 million people have already taken shape in this direction. Initially, only residents of Moscow and the Moscow region had such an opportunity, but in the summer of 2020, it appeared for all citizens of the country.
It is worth understanding what it is to work with your self-employment, what are the pros, cons and pitfalls of this type of activity.
What does self-employed mean?
On the territory of the state, self-employment is regulated by Federal Law No. 422 FZ of November 27, 2018. This tax regime is the conduct of professional activities without the presence of an employer and other employees. An additional point is the receipt of income from the use of own property.
Working as a simple self-employed makes it possible to pay tax, depending on the availability of income and its size. A citizen can be in this status, even if he has temporarily suspended his activities, in which case he will not have to make monthly tax deductions.
Any natural person from 16 years of age residing in the territory of the state can become self-employed. By choosing the self-employment mode, a citizen can engage in any business that is taxed, but he does not need to register an individual entrepreneur or LLC.
Who can become self-employed
A special tax regime allows all citizens of the Russian Federation to work independently, as well as foreign individuals from Kazakhstan, Armenia, Belarus, and Kyrgyzstan. For them, the same conditions remain as for local residents.
Individuals who receive income from the following activities are considered self-employed :
- cosmetology services at home or in a rented studio;
- services of a make-up artist, hairdresser, manicure or eyebrow master;
- services of a photographer and videographer;
- sale of products of own production;
- conducting weddings, birthdays, graduations and other events;
- legal services, legal advice;
- work on remote types of employment (includes both an independent search for customers and the use of online platforms);
- delivery of residential and non-residential types of premises;
- freight transportation, services of loaders, taxis;
- conducting construction and repair work in the premises;
- laborers, electricians, plumbers.
A special tax regime allows you to pay taxes only if you have income, which is important for those who work occasionally. At the time of the absence of income, the tax authorities will not require contributions.
How to work self-employed – Nuances and restrictions
Working with self-employment does not imply complete freedom of action, the special tax regime has a number of restrictions. The main ones are:
- The mode is not available for those who sell excisable goods. This category includes cigarettes, alcohol, gasoline.
- The self-employed cannot resell goods or property rights. Exceptions include trading in items or property that was purchased for personal, household or work use.
- It is impossible to issue self-employment to those who have a staff of employees subordinate to them. Even if there is cooperation under an employment contract.
- Conducting business activities that are in the interests of third parties (work on the basis of commission agreements, assignments or agency agreements).
- Persons who operate in a different taxation regime, provided for in Part 1 of the Tax Code of the Russian Federation, cannot register themselves as self-employed. For example, the presence of LLC or JSC.
It should be noted that the legislation does not prohibit the combination of tax regimes for individual entrepreneurs. Therefore, individual entrepreneurs can register as self-employed, completing their previous activities or combining these types.
Customers can work with the self-employed remotely. Even if the status of a tax resident is lost, this will not be the basis for terminating cooperation. The main thing is that the physical person retains registration on the territory of the state. Also, the self-employed person has the right to involve subcontractors in the work process. Such a citizen may have a whole team of assistants, but their cooperation is possible only without an employment contract. Official employment of workers is prohibited.
What taxes should the self-employed pay?
How much and how self-employed citizens pay taxes depends on who they cooperated with. If the income is received from an individual entrepreneur or a company, then the rate will be 6%. When receiving remuneration from an individual, it will be necessary to pay deductions in the amount of 4%.
The amount of tax is calculated from the total amount of profit received, payment is made in the application of the Federal Tax Service or "My Tax".
The Internal Revenue Service sends a notice to pay tax each month by the 12th. In this case, payment is required before the 25th day of each month. If the amount of tax accrued is less than 100 🪙, then the tax office will not require payment and will add this invoice to the next monthly payment.
What taxes are not required to pay, being self-employed
The question of what taxes are required and not required to be paid worries all citizens who are trying to figure out how the self-employed work. It also plays a role, who is in question – an individual or an individual entrepreneur.
Individuals who are in a special tax regime are exempted from paying personal income tax relating to objects subject to taxation. Individual entrepreneurs are exempted from paying taxes on income taxed on professional activities (an exception may be VAT on the import of goods into the state).
Also, individual entrepreneurs are not required to pay fixed insurance premiums.
How to get started in the special tax regime
For those who want to take advantage of the special tax regime, there is a simple guide to learn how to start working as self-employed, where to start.
The registration process is simple and takes only a few minutes. You will need the My Tax application or the taxpayer’s office on the website of the Federal Tax Service.
The most accessible is the use of a mobile application. In order to apply for self-employment and pay taxes from your professional work, you will need:
- Send the necessary documents to the tax office, this is done online, without leaving home. You will need an application for registration, a copy of the passport and personal photographs of the individual. The last item is not required if there is a personal account on the website of the Federal Tax Service or on the State Services.
- Wait for notification from the tax office. It will come through the application no later than the day following the day of application.
Immediately after receiving a notice of registration, a citizen receives the right to work with the subsequent monthly payment of taxes. It is worth noting that the tax service has the right to refuse to apply for a special tax regime if it sees inconsistencies in the documents and information provided. In this case, they will send a notification indicating the shortcomings, offer to correct them and re-send documents for registration of the status of a self-employed citizen.
Penalties for the self-employed
Paying taxes on the exercise of professional activity as a self-employed person has a number of advantages and privileges. The rules for working in this status are simple, therefore, penalties in monetary terms follow for violation.
If checks for the work performed are not entered into the application on time or they are not provided at all, then a fine will follow in the amount of the entire amount earned on unsubmitted reports.
The self-employment pilot project involves a fine of 20% of the amount earned. If a repeated violation occurs within 6 months, then as a sanction, all earned funds on an unprovided check are withdrawn.
In practice, the tax authorities immediately impose a full penalty, so citizens are advised to keep track of their earnings records and remember to pay each check from the income received.
About cooperation with the self-employed
Not all companies and enterprises know how to work with the self-employed without violating their own and others’ rights. The main condition is that a citizen working under a special tax regime should not be a former or current employee of the customer or work as an agent. These points should be considered in detail.
Former or current employee
There is no law prohibiting the self-employed from working with a former employer, but such activities will negatively affect the final amount of tax. From the income that is received from the current or former employer, the self-employed is obliged to pay not the standard 6%, but 13% personal income tax.
The obligation to pay the tax falls on the shoulders of the employer, this is provided for in Article 226 of the Tax Code of the state. Acting as a tax agent, the employer must also pay pension insurance contributions (27.1% of the amount paid). In total, about 40.1% of the flow is obtained. In the end, the customer from cooperation with a self-employed citizen receives big expenses and the need to make a lot of reports.
Therefore, an employment relationship between a former employer and a self-employed person is not recommended.
Agency labor activity
In the self-employment regime, citizens are prohibited from representing the interests of firms under agency, commission and commission agreements. An example often cited is the sale of used cars on behalf of a commission shop. The main principle of the special tax regime is to work for yourself and on your behalf. Tax authorities are quick to track down those who work in the name of others.
From the moment a violation is discovered, there will be a ban on paying taxes at a reduced interest rate of 6%, the employer is required to pay an increased tax as a tax agent.
If the employer does not want to have problems with the tax and overpay, you should not entrust the representation of your interests to persons operating under a special tax regime.
Companies and businesses sometimes try to hire couriers who work for themselves, while not knowing the nuances of how to work with the self-employed. The laws prescribed in the Tax Code of the Russian Federation indicate that an individual who has applied for self-employment does not have the right to be a courier. But an exception is possible for those who deliver orders, having the customer’s cash desk with them. At the same time, he must accept remuneration for his work separately.
Do I have to pay taxes for being self-employed?
In the event that a self-employed citizen is not a former or current employee, the customer is not liable for contributions to the tax service. He is exempted from the obligations of a tax agent; an individual pays tax on the income received on his own. The citizen also pays fines for conducting labor activities himself.
In this case, the employer does not have any risks from cooperation. Checks for paying taxes will be received by individuals in the My Tax application or the official application of the Federal Tax Service.
If the customer has a long-standing employment contract with a freelancer who decided to register as self-employed, then from the moment the new status is obtained, tax liabilities are canceled. This moment is considered in the letter of the Ministry of Finance No. 03-11-11 / 101180 dated 11/20/2020.
The right to voluntary payment of contributions to the Pension Fund is also assigned to an individual. If self-employment is combined with an individual entrepreneur, then there is also an additional opportunity to pay for insurance in case of pregnancy, maternity leave or sick leave.
Is it possible to transfer existing employees to self-employment mode?
Some enterprising employers, having studied information about how easy it is to work with the self-employed, decide to transfer employees to this mode of work. This is strictly prohibited. The employer will face a number of serious problems if he is caught evading the official employment of subordinates.
Compliance with the regulations is monitored by the tax and labor services. An individual who does not plan to become self-employed can also send a complaint about a violation of their rights. Not every citizen is ready to have full-fledged labor obligations. But at the same time, they lose the right to vacation, sick leave, official decree and pension.
If the tax authorities are interested in unknown regular transfers to the accounts of individuals who are self-employed, they have the right to come to the company with a full check. The fine will be from 10,000 to 100,000 🪙, this is provided for by Article 5.27 of the Code of Administrative Offenses of the Russian Federation.
If the employer already has a headquarters of self-employed employees, then in the event of an unforeseen inspection, he risks getting a serious penalty. And the need to submit a bunch of various reports in the future. He is obliged to issue workers in accordance with the Labor Code of the Russian Federation.
How to properly arrange cooperation with the self-employed
In order to understand how to start working with the self-employed legally, it is worth considering the process of registration of cooperation. A civil law contract is concluded between the customer and an individual conducting independent professional activities.
The type of contract depends on what type of labor cooperation is envisaged:
- performance of the works specified in the contract;
- provision of professional services;
- author’s order;
- contract of sale.
The contract should include a requirement to notify about the possible termination of the use of the NAP regime immediately after deregistration in the tax office. Failure to comply will result in penalties. The amount of the fine always covers the costs incurred by the customer.
The tax letter No. SD-4-3/2899 dated February 20, 2019 states that if the cooperation was formalized before the status of self-employed, then re-issuance of the contract is not required. Also, there is no need to draw up personnel documents for the self-employed.
A company, enterprise or individual entrepreneur has the right to pay a self-employed individual in a way convenient for both – in cash, to a card or bank account, to an electronic wallet. There are no restrictions in this regard. A self-employed person is not required to open an additional bank account specifically for earning income from a professional activity.
An individual deposits checks from income into the My Tax application. Indicating the number of the contract under which cooperation with the customer is carried out. Receipts and checks must be kept in case proof of payment is required. Or to account for some amounts in income.
The customer is not obliged to pay taxes for the self-employed, as well as pay bank commissions and other deductions.
What to do if the self-employed has completed his activity
For most customers, this situation will become critical. If a self-employed citizen officially closed his status through the tax service, then the employer will have to pay personal income tax and all pension contributions in fact. An exception may be cooperation with a self-employed individual entrepreneur.
In this scenario, the responsibility for paying fees remains with the contractor.
There are several cases when a self-employed person loses official status and can no longer carry out professional activities:
- the citizen himself applied to the tax office for deregistration;
- the annual income of the self-employed was higher than the possible amount of 2.4 million;
- a self-employed individual was engaged in prohibited activities, such as trading in excisable goods or working part-time on the basis of an agency agreement.
As soon as the self-employed receives a letter with a notice of termination of the special tax regime, the employer becomes his withholding agent.
An employer can protect himself by obtaining a certificate of the status of an individual from the My Tax application. It can be requested each time before payment for the work performed. Then the sudden termination of the tax regime will not be an unpleasant surprise.
Is it possible to hire several self-employed people at once for one business?
There is no limit on the number of self-employed individuals with whom a cooperation agreement has been concluded. An important nuance is the absence of a simple partnership agreement between them. This is the name of the document according to which two individual entrepreneurs add up money to obtain the greatest income.
If this rule is not observed, all self-employed people will lose their tax status and will no longer be able to legally carry out activities.
Benefits of becoming self-employed
There are several reasons why people who carry out professional activities should apply for a special tax regime:
- The presence of official white income.
- You can not be afraid of checks and sudden blocking of accounts, income will be confirmed by checks and statements, as well as regular payment of taxes.
- There is access to preferential terms when applying for loans and microloans.
- The choice of customers is becoming wider. At remote work, customers increasingly prefer people with formalized self-employment, rather than freelancers without tax status. Such cooperation reduces the risks for both parties and makes it possible to formally designate an employment relationship.
- You can get useful contacts and find like-minded people in your team. This will expand the work plan and increase income.
Registration of self-employment gives individuals the opportunity to legally carry out professional activities and have a confirmed, white income. In the future, the state plans to provide many additional benefits to citizens in this tax status. The special tax regime has the lowest rate among other types of legal business.