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2. Low income part-time autonomo first quarter returns - the expenses trap

As mentioned, I'm helping someone working part time, on a low wage deal with the challenge of the Spanish autonomo trap for part-time workers. After then end of the first registered quarter comes the first set of paperwork.

So four months into being an autonomo, we have now completed the first set of quarterly returns and been in the system for three months. So what happened in this first period?

Firstly, we had a problem with the social security office. The man in the office told us we didn't need to complete the 'choice of Mutua' part of the form (connected with pensions) - we did. We had a letter 2-3 weeks later which meant running back to the social security office (actually it took another 2-3 weeks because that was the earliest we could get an appointment via Cita-previa). This left us in a little bit of limbo dashing around to try to fix a problem in a system which doesn't do quick and doesn't really do helpful.

Our concern we that we missed the date for the first social security payment, and Spain typically expects the contributor to make sure the payment is made on time, even if the error is with the system.

However, we were OK. We did keep waiting for the first social security payment to come out of the bank account - in the end it was 3 months after registering and there were three deductions all at the same time - luckily at the starter rate of €53 per month. Being over 40 we were expecting it to come out at the full €260 rate - which would have been a lump sum of €780 in one go - not a small sum for someone on a low income to find in one go.

For IVA, we ran into some confusion. She should be set up on Regimen Simplificada for VAT, but trying to complete the forms online, the Regimen Simplificada form online only works for certain jobs (ie the job epigrafe used to register as autonomo wasn't one of the options on the Regimen Simplificada online form). So we ended up completing the more complex Regimen General form.

We then ran into what seems to be a perennial problem with IVA and IRPF - travel costs. As part of the freelance work, it's necessary to travel down to Barcelona twice a week from the Costa Brava. This entails a car journey (in a private car), then a train journey into Barcelona.

Tickets we believe can be claimed. We believe that under the Regimen Simplificada it's OK if you don't have a full factora to prove purchase as up to 5% of income can be these type of small un-factura'd costs. However, sources actually differ on this with the most legalistic ones saying that only a full factura (ie with name, NIE/NIF, address) is valid - imagine standing in a queue for tickets getting this lot filled out. You might think that as these are extremely common questions and issues, it would be really, really useful if Agencia Tributaria provided this type of information, rather than needing to try to look around for third party information.

It gets worse on the use of the car. For private motoring costs for business use, we have no idea whatsoever as to what is the correct interpretation. Everywhere we read on the Spanish Autonomo sites, the rules seem to be deliberately opaque and down to the judgement of the individual tax inspector - it's a 'special' expense and seems to be that there are no rules written down.

In the UK we would expect the tax office to allow a certain mileage/kilometrage rate - this is what seems to happen with employees travelling for business - AET set a figure at around 0.19c per kilometre from what I can see (this figure seems to date from 2008, since when fuel costs have increased 75% mind you).

For private car use as an autonomo from what I understand, if it's a journey in a private car the cost cannot be deducted from IRPF (even though it's a legitimate business cost). For IVA up to 50% of fuel and maintenance costs can be claimed back so long as the journey is solely for work, but you need to have the full facturas again (more forms...).

(Where is the Agencia Tributaria's guide to this? It seems to cause so much confusion that there should be a booklet/leaflet/webpage to make it absolutely clear).

The 'solely for work' part can make things difficult. If, for instance, an autonomo has a meeting away from home requiring an overnight stay and they happen to have a friend willing to put them up instead of taking a hotel, then this breaks the 'solely for work' requirement and they can't claim it back despite it being a valid method to save some money.

This 'solely for work' rule affects anyone doing business back in their home country, because by staying with family to save money, you lose the 'solely for work' element. Similarly if you have children that need looking after, so you drive them to a friend near the meeting to save on childcare costs, the journey is then not solely for work apparently. So for people on low income looking to save money, find they then can't deduct valid expenses. But the guidance is so vague, some clarity would be really useful.

We can't understand how to deal with business journey mileage so at the moment we have excluded it. Though it seems unfair on a journey taking €10 of fuel for each of the two days a week that this €80 per month (4x 2x €10) is not claimable - another hidden cost for someone only bringing in €750 part time per month.

Of course there is one way to get around this. I read that well-paid self-employed people such as architects have a way around this, and that's to have two cars: one for private use and one for business use. With two cars, all the second car expenses are then treated as business costs and can be counted against income.

This example also illustrates how the laws, rules and normativas around being an autonomo are grossly unfair to those on low incomes. The rules have been written expecting or treating the autonomo as being wealthy (ie autonomous in means, rather than self-employed because that's the only option to have work). If you have a second car, can afford to stay in hotels instead of with friends, don't have issues with childcare or need to use public transport, can afford a gestor to manage your affairs and the high rate of social security then being autonomo will be a breeze.

For low-paid, part-time autonomos, where being an autonomo is the only possibility for having an income, the system, in broad terms, stinks and is in complete need of reform. Six years into the crisis we're still waiting for substantive changes.

In summary at the end of the first quarter with four invoices of €750 raised (the first for two months), within the first 20 days, three lump sums had to be paid: €630 for VAT/IVA, and broadly €550 for IRPF and €159 for social security (which because of the delays all came in one lump). This is €1339 in cash that has to be available when the taxes are due. For someone juggling scraping by on a small income, potentially juggling other bills this is a big lump sum, and if it isn't paid there are big fines otherwise in a very unforgiving system.

The total amount into the bank account was €3630 (includes IVA on top of the invoices) - the total amount out was €1339 (37% of the cash received to date). So while you're earning, it is essential to keep money aside for the day the taxes become due.

More importantly, if the last invoice gets paid late or in 30 days or more, then a low-paid autonomo is in a huge hole. In other words if the last invoice inc IVA - €907.50 - was not paid by the 20th, the hacienda would still need to be paid. The €1339 would have had to come out of €2722.50 (49% of cash received) assuming it hadn't been used for rent, food and other essentials.

For anyone who is an autonomo, it's essential to manage cash, what-ifs and to make sure you are paid on time, and secondly to appreciate that very large sums of money need to be paid at the end of every quarter - the money's not yours until the tax has been paid.

See also:

Part 1: The Spanish autonomo trap for part-time workers

Part 3: Low income  autonomos and the Renta repayment trap

Previous article: 1. The Spanish autonomo trap for part-time workers Next article: 3. Low income and the Renta repayment trap
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