Which advance tax payments should you make before the end of 2020?
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“Advance tax payments”: this name leaves no room for doubt. In Belgium, self-employed professionals or one-man-companies who do not start their activity are obliged to pay their taxes in advance, without waiting for their tax return.
As a general rule, the earlier in the year you pay, the better. In 2020, though, the coronavirus crisis hit before the first payment was due. the government did not want to further penalize the self-employed that faced liquidity problems in the first part of the year and were nevertheless obliged to make these payments.
See here on what that means for you, whether you start up your activity or not, whether you are self-employed as a natural person or as a company.
Should you make advance tax payments?
Maybe not: if you are self-employed and in your first three years of activity, you are not obliged to make an advance payment. Yet, you are allowed to make these payments and you receive a tax bonus if you do. Note that the coronavirus measures linked to advance payments do not apply to you.
You do not risk a tax increase if you are in the first three years of a new company that is considered a “small company” and does not make the advance payments on taxes.
If you are a company subject to corporation tax, you pay 102% of your tax in four successive installments during the year, one each quarter. Different percentages apply depending on the installment: the government adjusted them in 2020. If you do not make these payments, you risk a tax increase at the hefty rate of 6.75%.
If you are self-employed as a natural person, company director, helping spouse, or liberal profession, you pay 106% of the tax due in four successive installments. In 2020, the percentages that apply to each installment changed. If you do not make these payments, you will face a tax increase equivalent to 106% of the tax due X 2.25%.
📌 NB: for individuals, only 90% of the tax is taken into account in the calculation of the tax increase.
How to calculate the advance payments in 2020?
In other years, you should estimate the total amount of your advance payments for the year and make a payment equivalent to 75% of the total at the earliest opportunity. If necessary, you should have gone to your banker: they who would have offered you credit at an attractive rate.
However, the date of the first installment, in April, coincided with the beginning of the coronavirus crisis: the government did not want to penalize companies that would not have been able to make their payments due to a lack of liquidity.
The percentages of the last payments of the year were therefore increased. In this way, deferring the payments of advance payments to the last months of the year is less disadvantageous than usual. See here the exact rates (FR or NL).
⚠️ This measure is intended to help businesses that are running out of cash. It, therefore, does not apply, as stated on the Ministry of Finance website, to companies that “carry out a repurchase of their own shares or a reduction in their capital; pay or allocate dividends between 12 March 2020 and 31 December 2020”.
How will you know what you should pay?
Our partner accountant has you covered with his recommendation:
“See where you stand by September 30 for this year & from there, extrapolate what you should pay for the last 3 months, by December 31. You would then be able to make an exact advance payment for the last quarter of 2020”
What does not change with the coronavirus support measures?
– The increased percentages at the end of the year also do not apply to natural persons who could receive more bonuses because of advance payments.
-The percentages of the increases (in case of non-payment therefore) themselves remain unchanged.
– The dates of the advance payments remain the same: 14 April, 10 July, 12 October, 21 December.
In 2020, do you risk an increase in taxes if you do not make your advance payments?
The legislator has made sure that self-employed persons who have not been able to make advance payments in the first part of the year are not penalized: the percentages applicable at the end of the year are higher than usual in 2020.
In practice, self-employed persons who pay the tax due in 2020 in advance “only” in October and/or December should not face too large an increase, if any.
However, if you are obliged to make advance payments and you are not in your first three years of activity, you will still have to make these payments in 2020. Otherwise, you’ll face a penalty.
These matters are not easy to understand: don’t forget that, if you are stuck, you can take advantage of our on-demand accounting services. With one click, you are in touch with a chartered accountant who can review your situation and provide you with a well-informed answer on this and other matters!