The steps to successfully implement the withholding tax at source
16/10/2018 by Hicham HMICHE
16/10/2018 by Hicham HMICHE
The decision is now definitively adopted by the government. Income tax will be levied at source, i.e. directly on employees' pay slips, as from 1 January 2019. It is a measure that has been on the State's agenda for many years with an objective for the tax authorities: to facilitate tax collection and also to make it easier for all taxpayers to pay it each year.
It is therefore companies, whether small or not, craftsmen or persons working alone, who will have to take on the indirect responsibility of collecting taxes. This will involve applying a rate transmitted by the tax authorities to an employee's salary. This additional work requires an awareness of all the actors within the company to ensure the proper functioning of this new system, which is criticized by some.
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If the measure is criticised, the withholding tax will be implemented on 1 January 2019 and many employees are concerned. Questions and interrogations are probably flowing between colleagues or at the coffee machine. Many are wondering about the implementation of this system within their company. It is therefore time to discuss the subject with your teams to reassure them.
To put all the information flat, a staff briefing note is the most effective solution. It makes it possible to keep a written record of the essential information employees need to know about the withholding tax. It is also about saving time in managing this change, rather than having to respond individually to each employee. Nevertheless, an information note may not be enough and questions may remain among some employees who may have complex personal situations from a tax point of view. In this case, a staff meeting, or one organised in each department for larger companies, can make it possible to answer all questions at the same time, in order to save time on the withholding tax.
The implementation of withholding tax through companies requires the application of a rate on employees' salaries. It is this rate and the information provided by the tax administration that worries employees. Many fear that their employers will obtain confidential information about their personal and family lives. In reality, this is not the case. Employees must be reassured by explaining that the tax authorities only send companies a rate to be applied at the end of the month on each employee's salary. This rate has no personal significance and therefore cannot reveal anything about an employee's personal situation.
Nevertheless, if an employee does not have confidence in this system, the State has put in place a neutral rate for withholding tax. This ensures that his employer does not know his situation. This choice still represents an additional constraint for the employee since, in addition to the tax levy, he will also have to pay the additional tax each month. Indeed, the neutral rate does not cover the entire tax levy. But it is necessary to remind its employees that this system exists to remove any concerns.
The calculations of the different tax rates were carried out in the summer of 2018 by the tax services following the filing of the usual income tax return by taxpayers. The tax rate to be applied from 1 January 2019 will be communicated to companies in September and October 2018. This information will be communicated to you through the business report with the same flow and return as the Nominative Social Declaration.
This information is therefore in the possession of the accounting department for companies that have it, or of the manager for smaller companies. They will make it possible to carry out simulations in the autumn on your employees' salaries. This test period has a double advantage: to see if the functioning of the rate in your company is working properly and to prepare your employees for the application of the rate. They will thus be able to see, on their pay slip, the new amount of their pay reduced by the withholding tax, even if the measure (and therefore the actual withholding tax) only comes into force on 1 January 2019.
After this short break-in period, you can ensure that your company is ready for withholding tax from the beginning of 2019. From 1 January, it will therefore be mandatory to indicate on the pay slip several information relating to the levying of tax: the rate applied, the basis of assessment and the amount of the withholding tax that is levied. As before, it is necessary to indicate a line on the net salary and then a new line on the salary after tax deduction.
The company is then responsible for paying back the month following the tax deducted from the employees' salaries in the previous month. All these changes will inevitably require an adjustment period for employers and the Directorate-General for Public Finance is setting up tools on its website to assist companies in setting up withholding tax at source.