How the Cessation of Activity is taxed in the Personal Income Tax of the Self-Employed is also a question that many people ask themselves. Covid-19 caused that many thousands of Self-Employed have had to apply for the aid for cessation of their activity.
Therefore, if you are a professional or self-employed businessman and you received the extraordinary benefit for cessation of activity, within the aid package to combat the effects of Covid-19, you may have doubts about how this income is taxed.
The experts of our Tax Consulting Department, clarify to us that they are taxed differently, depending on the aid that has been received. Taking into account that the 2020 Income and Wealth Tax Campaign begins on April 7th telematically. And it will conclude on June 30th, 2021, according to the calendar published by the Tax Agency. Although it will be from May 6th when it can be done by telephone and from June 2nd in person at the offices.
How the Cessation of Activity is taxed for Personal Income Tax
This benefit is considered for tax purposes, an employment income (according to article 17.1.b) of the Personal Income Tax Law). As is the case with unemployment benefits. Therefore, in any case, they must be included in the IRPF declaration form 100, in the section corresponding to income from work.
As regards the communication to the Tax Agency of this benefit, it is the payer of the benefit who must do so through form 190 with code C (unemployment benefits and subsidies). In this case, the responsible party will be the Mutual Insurance Company collaborating with the Social Security.
For all these reasons, the extraordinary benefit for termination of activity should not be included as a quarterly income in the IRPF form 130. Although its origin is in the economic activity of the self-employed, it is not an income inherent to the same. Therefore, it cannot be classified as income from economic activities, and should not be included in form 130 of IRPF installment payments.
Other aids to be taken into account for Personal Income Tax purposes
There are also a series of aids that were known, and that in one way or another could be affected or not.
Return of the self-employed worker’s contribution
The self-employed worker who has been exempted from the self-employment tax should not include it as a deductible expense. If the fee was refunded, the amount of the fees refunded must be subtracted from the expenses incurred.
Subsidies from the Autonomous Communities
Subsidies received by a businessman or professional from the Autonomous Communities are taxable and must be included in the personal income tax return as income from economic activities, as a general rule. However, there is an exception to taxation. If such assistance has been expressly indicated as being exempt from taxation, it should not be included.
Tax Moratoria
Those self-employed workers who received a tax moratorium to defer tax debts will have to pay interest (3.75%).
This interest must be paid if the debt has not been settled after the first four months since the moratorium began to be applied.
It should be taken into account that if the Tax Agency has not been able to collect the debts with interest, if any, within the established term, it will have additionally settled a surcharge in case of late voluntary payment. These surcharges will not be tax deductible, unlike the tax late payment interest, which is deductible.
Aid to the Self-Employed who do not pay taxes
Among all the aids created for the Self-Employed, there are some that are exempt from taxation.
This is the case of ICO loans. As it is a loan, the person who has received it has to pay it back, so in reality there is no income. This means that the credit received is not taxed as such. However, the self-employed person can deduct as an expense the interests that he/she has had to bear. As well as the rest of the opening and constitution expenses that would have been applied.
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