Who owes the tax, and on what base

A medical practice, a driving school, an employing charity and a training body share one feature: they invoice without value added tax, and pay for that a levy their registered competitors never see. On a payroll of 200 000 €, it often exceeds 8 500 €.

A tax that strikes non-registration

The principle is counter-intuitive. The payroll tax is not owed by every employer: it targets those who escape value added tax. Invoicing without it is therefore no net advantage; it is a regime that carries its own counterpart.

The historical logic behind it is one of compensation. Activities exempt from value added tax collect nothing for the State on their sales; this levy restores a contribution from them, based this time on the remuneration they pay out rather than on the turnover they record.

The scope therefore covers whole sectors of the economy: health, education, financial and insurance activities, the charitable sector and non-profit bodies of every size. An employer moving from one regime to the other sometimes discovers this tax a full year late, once the first assessment lands.

The ninety per cent threshold and the ratio

Two situations are distinguished. An employer entirely outside the scope of value added tax bears the levy on the whole of its remuneration. One registered on only a limited share of its turnover applies a ratio instead.

The tipping point sits at ninety per cent of the previous year's turnover: an employer subject to value added tax on less than 90 % of it remains liable, on a base limited to the proportion of receipts that gave no right to deduct.

The ratio adds together, in the numerator, receipts falling outside the scope and receipts exempt without any right to deduct, and then sets that total against all receipts of the year. The resulting percentage is applied to the taxable remuneration paid during the current year.

The ratio is recomputed every year, from the receipts of the preceding financial year. An activity growing on its taxable side therefore sees its ratio fall with a year's delay, which forbids fixing it once and for all.

That lag does not make the ratio known from the first of January. Until the final ratio is settled, the tax on early-year wages is assessed on the previous year's provisional ratio, then adjusted at a later payment, by a top-up or by offsetting the excess.

A frequent error consists in keeping only exempt transactions in the numerator, leaving out those outside the scope. Both categories are added there, and omitting the second understates the ratio and therefore the base declared.

Remuneration included and employers exempted

The base follows that of the CSG applicable to earned income: gross wages, bonuses, allowances, benefits in kind. Some sums are excluded, among them the part of an internship allowance staying within the contribution exemption limit.

• Employers whose turnover stays within the value added tax registration exemption limits
• The State and public authorities
• An individual employing a home worker or a childminder on a full-time basis
• Employers established outside mainland France and the overseas departments

The exemption for household employers deserves careful reading. It presupposes full-time employment, or several part-time jobs amounting to a full-time equivalent. An individual employing only part-time does not benefit from it.

Remuneration excluded from this particular base nonetheless remains subject to the general social contribution. An exemption granted on one levy carries none at all on the others, and reasoning by analogy from one to the next proves expensive here.

The exemption tied to registration limits also repays close reading. It is assessed on the turnover of the previous calendar year, so that an overshoot in one year produces its effect on the following year's tax.

For a young organisation, the lack of a reference year does not exempt it from the tax. A new business may, for its first year, use the liability ratio of the current year: the tax is therefore assessed from that first year, and the threshold applies whatever the length of activity within the year.