Self-employment allows you to pursue independent employment without having an employer. Let’s see how it works, the rules on VAT, contracts, and income.
What is self-employment
Self-employment is defined as the activity of a person who freely chooses the methods, times and place of work performance. It is therefore an activity carried out by workers who are not employees and who have the sole obligation to carry out what has been agreed with their customers. For example, a freelance developer undertakes to build a smartphone app according to the specifications desired by a company.
Self-employment can be of two types: habitual or occasional. If the activity is carried out on a regular or continuous basis, it is defined as habitual and requires a p. VAT. This is the case, for example, of the marketing consultant who works for his clients every month. If the activity, on the other hand, is carried out sporadically and not continuously, it is defined as occasional and does not require particular requirements. As in the case of the student who once a year creates a website for a friend for a few hundred euros.
With VAT number: usual work
All self-employed who work regularly are required to open a VAT number. The procedure can be carried out at the Revenue Agency or online with the dedicated Communicate service. It is easy to make mistakes when filling in the necessary forms, as it is necessary to check the requirements for the tax regime and choose the right ATECO code for the business.
In addition, there are a number of additional obligations to consider such as billing obligations and the payment of pension contributions. These are important aspects that change according to the sector and the choices made when opening the VAT number. For this reason, it is useful to contact a professional who acts as a guide and who takes care of all the necessary formalities.
Without VAT number: occasional work
Self-employed workers who carry out an activity in an unusual way can work without a VAT number. In these cases, it is not necessary to go to the Revenue Agency and there are no particular accounting requirements. In fact, it is not necessary to issue an invoice, but a simple payment receipt to which, in general, a withholding tax is applied for the occasional service.
Furthermore, with regard to pension obligations, in occasional work, it is not mandatory to pay INPS contributions. In fact, pension obligations are triggered only if more than € 5,000 are collected in a year.
The contracts of the self-employed
Self-employment consists in the realization of a work or service of any kind. Today, traditional self-employed workers such as architects or doctors are joined by figures from the digital economy such as designers, freelancers and website developers. There are, therefore, many job opportunities and different contracts to regulate each relationship. Based on the activity carried out, it is possible to choose between:
- Work contract used when the activity involves the delivery of a result defined in the contract (e.g. the development of a website)
- Service supply contract used for continuous or periodic activities (e.g. a social network management service)
Tax regimes and how income is calculated
The income of a self-employed activity is represented only by a part of the total annual turnover. The calculation of the income depends on the tax regime applied. There are two schemes: the flat rate scheme and the ordinary scheme. The taxes are only one of the costs of the p. VAT whose annual expenditure depends on the sector in which it operates, the annual turnover and the tax regime applied. Let’s see how income and taxes are calculated.
In the flat-rate scheme, taxable income depends on a percentage set by law. This percentage is called the profitability ratio and depends on the sector of activity of the self-employed worker. To calculate the income, this profitability coefficient is multiplied by the turnover. Let’s see an example:
If the self-employed worker is a marketing consultant, the profitability ratio is 78%. In this case, with an annual turnover of € 10,000, the taxable income is only € 7,800. In fact, € 10,000 * 78% (coefficient) = € 7,800 (income).
The income calculated in this way, in the flat rate scheme, is taxed with a single tax, a tax of 15% on one’s income, reduced to 5% in the first 5 years of activity. To calculate the tax to be paid, simply multiply the income by the flat rate tax. Going back to the example of the marketing consultant, in this case, the taxes would be:
- € 7,800 (income) * 5% (in the first 5 years of activity) = € 390 of taxes
- € 7,800 (income) * 15% (after the first 5 years of activity) = € 1,170 of taxes
In the ordinary regime, however, the taxable income depends on the costs incurred for the activity. There is no profitability coefficient and it is enough to subtract expenses (eg rental costs or instruments purchased) from turnover.
For example, an ordinary consultant with an annual turnover of € 20,000 and who incurs expenses of € 5,000 has an income of € 15,000. In fact, the income is € 20,000 – 5,000 = € 15,000.
The income calculated in this way, in the ordinary regime, is taxed by multiplying the taxable amount by the IRPEF percentage (personal income tax). This percentage varies according to annual income with percentages ranging from 23% to 43%. In the example case:
- € 15,000 (income) * 23% IRPEF = € 1,150 in taxes
In addition to personal income tax, however, other taxes must be applied in the ordinary regime. In particular, income is also taxed with some regional taxes such as IRAP, the percentage of which varies according to the region of reference and the type of activity carried out. In addition, VAT must be added to the invoice in this regime and there are many additional accounting requirements.
Single certification of income
The single certification is a document that certifies the remuneration paid by customers to self-employed workers. In particular, this document must be issued by companies and companies that pay a collaborator. It is a document that contains the summary of the income received by the worker during the year. Generally, this certification is sent to the Revenue Agency by March 31 of each year.