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1. The Spanish autonomo trap for part-time workers

This is our saga of helping a friend who has taken a low-paid part-time job as an autonomo, and how difficult the Spanish autonomo system is for the low-paid or anyone wanting to work part-time in a hobby-type business.

We're in 2014 and, for a variety of reasons, I'm helping someone who has found a job, but only if they take it as an autonomo and only as part-time work. You would appreciate that with the lack of jobs and the still great financial uncertainty, businesses are still reluctant to take on new employees, and even more reluctant to take on large extra costs or obligations.

Spain has been in an economic mess since 2008 and there are now close to 5 million people unemployed. Despite this in the six years since the start of the crisis, they have barely scratched the surface in terms of reforming some of the big barriers to employment - like their autonomo system which is strongly prejudicial to part-time workers.

The three biggest barriers to becoming an autonomo are the cost, the paperwork obligations and the challenge of an intransigent bureaucracy.

To become self-employed you have to register with both the tax office and social security service. This is compulsory as you can't raise invoices without doing this.

As an autonomo in the social security system you pay around €250-€261 per month in social security payments for the whole time you are registered as self-employed. This is irrespective of how much you earn, whether clients have paid you, or whether you have done any billable work in that month.

(In the last year, in the only reform of this system in the last six years, there is a reduction to €53 per month for the first 6 months, then to €130 for the next 6-12 months. For those under 30 or under 35 and female these reduced rates last a little longer)

On top of this, it is expected that you will need to pay for a Gestor - someone to manage the paperwork as you have to file documents every quarter. This will be between €60-€80 per month on top of the social security bill, plus extra for filing your annual Renta. In principle you can do your own paper filing, but the Hacienda is not set up to help people. It expects all documents to be correct first time and filed on-time. Mistakes are not allowed. You will be fined a minimum of €75 for each form with an error. Unlike the UK, you will not get a helpful phone call to clarify a problem, or a letter asking you to rectify a mistake or to check an apparent oversight. It's straight to sanctions for infractions of the tax law. The tax office can also be quite slow at finding mistakes and you can find you have made the same error 3 or 4 times before they catch up with you. Yes. That does mean 3 or 4 times the fine imposed.

Individuals in the tax office tend to be nice people and will help if they can, but they are not gestors and they are not necessarily experts on the forms. Several times now we've had issues because advice/help from a friendly face at a tax or social security office was actually incorrect!

As a result, if you are to become an autonomo you should expect to be paying out around €350 per month, to know about bookkeeping and be prepared to take at least one day a quarter on dealing with tax and paperwork issues and be able to manage cash so that you can pay the quarterly VAT and IPRF tax bill.

In this case, they person I'm helping is looking at part-time work of 20 hours per week, each at about €8.75 per hour - a little over the minimum wage. That's about €750 per month income, from which she will lose €350 - ie an effective tax rate of 47% - higher than the top tax rate for high earners in Spain.

This also comes with all the heartache and risk of fines, filing dates and obviously no employment protection, no holiday leave or pay, no sick leave - though it does allow her to stay within the Spanish national health system.

If, even after looking at this lousy economic argument, you still want to be an autonomo, you still have to deal with the paperwork. As is normal with Spanish paperwork plan on three visits for every form you have to submit. It's extremely difficult to have the right set.

Firstly register at the tax office. If you don't have an electronic certificate or eDNI you have to do this in person - you can't even send a representative. You'll need an NIE number and fill out modelo 036 (which you have to buy at the tax office). You'll also need a job code to say which category the job falls into - not always easy with modern professional jobs.

A top-tip is that while you're at the tax office you should arrange for an electronic certificate. You'll need to register for this online - from the agencia tributaria you have to go to a third party website to sign up for the certificate, then print the number they give you out. Then at the office you can go to another desk to get the number validated so you can download the certificate so you can connect to the tax office online from home - all communication with the tax office needs validated ID.

With a stamped 036 modelo, the next step is to the social security office. This will be a different building and different people - locate the address before you go as they tend to be smaller offices. It's also different from the dole office if you've had to go there for unemployment. The social security office is where you will need to register for the self-employed social security system so another form to fill in. You will need a bank account, plus the NIE, plus the 036, but take more documents just in case.

In our case, when at the social security office, they wouldn't speak to us without a prior appointment. So we had to go home. Go online. Book an appointment with cita-previa. The minimum time we could book for was ten days ahead. Then we had to go back to the social security office at the appointed times to complete the forms with an official.

In our case, that wasn't quite the end of the social security saga. Since 2008 people registering as autonomos have to register or provide the name of a mutua that will provide a limited level of unemployment and sickness protection (after 12 months). In our case, the social security office person had allowed us to leave this blank as not important. Registered mail a few weeks later - complete this document in 10 days or else. So we had to name a mutua. I think that was it - just pick a name from the Social Security list on their website. Then back to the office to hand the response to the letter in (fax, post etc isn't good enough).

Having registered at the tax office and the social security office (notice two separate physical places), the person I'm helping can then issue invoices. In other words at this point she is legally able to start work. Allow at least one day to prepare documents, read up on the latest rules and regulations, search for help etc, then around one to ten days to get through the office visits.

As a side-note, since as an autonomo you issue an invoice, it is very different to a salary. Salaries have to be paid by employers. Invoices are 'negotiable'. So you have to be careful with unscrupulous companies either not paying on time, or not paying at all (the Spanish government has a record of paying in 90+ days - ie three months after the invoice date). Technically, it's not strictly legal for a business to use the autonomo rules to employ people, but we're in a crisis and people want to take whatever they can get.

Once you can bill though, Spanish invoices are then another layer of complication. Everyone who is autonomo has to charge VAT on their invoices - unlike the UK where there is a £55,000 threshold level before you have to be VAT registered, in Spain every autonomo has to do and know about VAT (L'IVA) - and it's not easy to claim expenses back - lots of restrictions and difficult to get the money back.

VAT rates vary, but most probably it will be 21%. You may also have to include a retencion on the invoice. A retencion is where the person paying you pays an amount of IPRF (income tax) to the tax office instead of paying it to you directly. We had several hours contacting accountants trying to work out what the retencion rate should be - zero for our particular case. You will need to include a date, the invoice number (strictly incrementing), your name, DNI, bank account and the name and DNI of the business you are invoicing for it to be a valid invoice.

Once you are paid, the VAT you charge has to be paid to the tax office. So don't count this income as your own - keep this money someone safe and different. It must be paid on time. No ifs or buts. What's more you should be careful with invoicing at the end of the quarter as you can find that you've issued a VAT invoice and not been paid by the time the VAT becomes due. Now they've changed this so in principle you only need to pay the VAT if it's been paid to you. But I strongly advise being careful - see above about how little help the Hacienda gives and how easy it is to be in a situation which will result in a fine. The tax rules here are that you pay first, quibble later. Fines can be up to 3x the tax owed.

Each quarter (January, April, July, October) VAT has to be declared through the 303 Modelo (the older, but similar 300 is on this site). If you are working for countries in the EU - eg freelancing for a business back in the UK, you will need to complete a 349 modelo too using specialist piece of software from the Agencia Tributaria which is severely lacking on user-friendliness. You will also need to get use to using digital certificates to sign every document.

Also every quarter you have to declare and pay IPRF on the invoices you have raised (120 or 130 modelo). Again, watch for cash flow as you may have to pay tax on invoices you have issued before you have actually received the money yourself.

At the end of the year, in January you will need to make a final VAT declaration - modelo 390. I forgot this year and was three days later on the filing - immediate fine of €75 (no warning - straight to sanctions). This also requires the use of Agencia Tributaria software.

And then in June she'll have complete the Renta which, because she's not employed will require a full declaration even though the amount earned through the year was about €9000.

So if you want to set up a simple home-based hobby e-commerce business, or to sell a few crafts on the market, or to do some occasional odd-jobbing, or some part-time translation or freelance work, or some baby-sitting, this is what it takes to become a self-employed part-time autonomo.

There are some quasi-apocryphal rules that if you are earning less than the minimum wage you may not need to be registered for social security - but this is based on slightly unusual legal case that hasn't been tested more widely. See the notes above on the power of the Hacienda.

With 5 million people unemployed you would think reforming the self-employment rules would be an easy reform to make, but the cost and bureaucracy for being self-employed - even full time - remains immense, even with the limited reforms made so far.

If Spain had a simple rule that anyone earning less than 12,000 per year can be autonomo just by registering once, registering a simple quarterly declaration of income, no VAT requirement and social security paid out as a percentage of an annualised income would lift large numbers of the population out of the black economy.

See also:

Part 2: Low income part-time autonomo first quarter return - the expenses trap

Part 3: Low income  autonomos and the Renta repayment trap

Previous article: Next article: 2. Low income part-time autonomo first quarter returns - the expenses trap
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