Can an individual entrepreneur be self-employed?

What is self-employment and is it available to an entrepreneur

The self-employed are usually referred to as people who pay professional income tax (EPT). This is a special tax regime, which in an experimental form validFederal Law No. 422‑FZ of November 27, 2018 “On the Experiment to Establish a Special Tax Regime “Tax on Professional Income”” in Russia until 2029. It was introduced to bring out of the shadows those who work for themselves and do not pay taxes: private craftsmen, confectioners, freelancers, and so on. But go to NAP can not only individuals without status, but also individual entrepreneurs.

Here are the benefits of this mode:

• Low tax rates: 4% on income received from transactions with individuals, and 6% - with legal entities. And thanks to a tax deduction of 10 thousand rubles, the rate is reduced to 3% when working with individuals and up to 4% - with legal entities until this limit is exhausted.
• No need for complex reporting. It is automatically generated in the My Tax application.
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• No needFederal Law of May 22, 2003 No. 54-FZ “On the use of cash registers in the implementation of settlements in the Russian Federation” use the online checkout. Issue checks to customers necessaryFederal Law No. 422‑FZ of November 27, 2018 “On the Experiment to Establish a Special Tax Regime “Tax on Professional Income””, but they can also be generated in the My Tax application.

Which IP is suitable for self-employment

An entrepreneur can switch to NAP if he meets three conditions:

1. He does not have employees under labor contracts. At the same time, you can attract third-party performers. For example, if an individual entrepreneur has a furniture manufacturing workshop, he cannot hire an assistant. But contacting a designer to develop a logo for packaging is allowed. (It is important that an individual entrepreneur retains the functions of a tax agent even at the NAP. So if he hires a contractor by GPC, you still have to withhold and transfer personal income tax for him.)
2. He earns less than 2.4 million rubles a year.
3. He is engaged in activities suitable for the NAP. The self-employed, for example, cannot resell goods. You can read more about the available classes in a separate material.

Which tax regime is more profitable for individual entrepreneurs

We will immediately exclude the general taxation system (OSNO) and the unified agricultural tax (ESHN) from the comparison. The first regime has a high tax rate and many other troubles. So it is usually used by individual entrepreneurs with a large staff and incomes that do not fit into the self-employment criteria. ESHN is a regime for those who grow, process or sell agricultural products. Usually this requires employees.

We will compare the NAP with two regimes that entrepreneurs without employees and with an annual income of less than 2.4 million often switch to - simplified (STS) and patent (PSN) taxation systems. We will analyze according to significant criteria.

By tax rate

Self-employment and simplification

For the simplified tax system, there are two options: 6% of all income or 15% of the difference between income and expenses. The rate may be lower if the region in which the entrepreneur operates decides to reduce it. But this is not such a common practice. So let's take the base numbers.

Compared to the 6% rate for the STS, self-employment is more profitable, especially if the individual entrepreneur mainly works with human customers, not companies. For such transactions, the rate will be 2% lower even without any deductions.

With the “income minus expenses” option, it’s a little more complicated, because here you need to do calculations separately for each situation. The simplified taxation system is more profitable for those who almost do not include their labor in the cost of goods. But if you offer customers to pay for work, then NAP is preferable. Let's look at examples.

Let's say our individual entrepreneur knits hats and sells them for a thousand rubles. At the same time, he spends 700 rubles on yarn for each product. On the NAP, he would pay 40 rubles from one headgear sold to an individual. And on the simplified tax system "income minus expenses" - 15% of 300 rubles, that is, 45 rubles. The difference is small, but in favor of self-employment. If the entrepreneur decides to sell hats for 1.5 thousand, then the NAP will become even more preferable.

For those who sell various kinds of services at no particular cost - copywriters, designers, various consultants, the simplified tax system initially makes little sense if the specialist fits into the criteria self-employment.

Self-employment and the patent

Only suitable for PSN someTax Code of the Russian Federation, article 346.43 "General provisions" activities such as:

• repair, cleaning, coloring and tailoring of footwear;
• hairdressing and cosmetic services;
• dry cleaning and laundry services;
• production and repair of metal haberdashery, keys, license plates, street signs.

Every year the entrepreneur buys patent, and with it the right to work in the chosen direction. It is valid until the end of the calendar year, regardless of the date of purchase. If an individual entrepreneur wants to engage in several activities, he pays for several patents.

This is important to consider for calculations, which is more profitable. But only the entrepreneur himself can do this. Because you need to know exactly the income and cost of patents. And their price varies depending on the scope of employment and the region.

For example, we have a photographer from St. Petersburg who wants to work legally as an entrepreneur from August 1, 2022. (Although he might be self-employed without IP registration. But sometimes people get this status to make it easier to build communications with customers: IP looks more solid.) The hero chooses between a patent and an NAP. The first one will cost him 22,636 rubles by the end of the year - you can calculate this in a special calculator tax. How much you have to pay for NAP depends on the income and status of clients. If he earned a million in these six months in photographs from private customers, the tax will be 40 thousand, that is, more than the cost of the patent. If 400 thousand - 16 thousand will come out, that is, less.

For insurance premiums

The self-employed person does not have to pay any contributions. He can voluntarily transfer money to the Pension Fund, but no one insists on this.

With the simplified taxation system and PSN, the entrepreneur will have to pay once a year such contributions:

• To the Pension Fund - 34,445 rubles, and with an income of more than 300 thousand - 1% of the excess.
• To the Compulsory Medical Insurance Fund - 8,766 rubles.

At the same time, the amount of contributions is growing from year to year.

However, there is also good news. When paying 6% of income on the simplified tax system, an entrepreneur can deduct the entire insurance premiums listed from the tax amount. As a result, the total costs will look as if the entrepreneur did not pay any contributions.

They can also be deducted from the cost of a patent than to reduce its price down to zero. Then the total expenses for individual entrepreneurs will be equal to the amount of insurance premiums for the year - 43,211 rubles in 2022. But with a profit of 500 thousand a year, an entrepreneur on the NAP would pay only 20 thousand taxes, working with individuals, which is less.

How to become self-employed as an entrepreneur

Like a person without IP status, an entrepreneur simply needs to register in the My Tax application on a smartphone or in his browser version.

Professional income tax cannot be combined with other special tax regimes. So first you need notify of the Federal Tax Service of Russia dated December 26, 2018 No. SD-4-3 / 25577@ No. On the procedure for notification of the beginning and termination of the application of the special tax regime "Tax on professional income" FTS to refuse them. This must be done within a month from the date of registration in "My tax". (Here are the notification forms when switching from USN and with ESHN.) With PSN, you will have to wait until the patent ends. You can switch to NAP from the general taxation system without any notification.

What happens if an individual entrepreneur on the NAP ceases to fulfill the criteria for self-employment

Hiring an employee without noticing it is difficult. But it is quite possible to exceed the income threshold of 2.4 million or do something that is prohibited for the self-employed. In this case, it is allowed to choose another tax regime.

With a voluntary renunciation of the NAP, everything is different. In this case, individual entrepreneurs are automatically transferred to the general taxation regime. Go on USNLetter from the Federal Tax Service of July 16, 2021 N BS‑19‑11/263@ “On sending a response” or ESHN will be possible only next year. With a patent, there are no such restrictions.