NPF: 5 key points for the self-employed

Contents:

• Restrictions of the NPF regime: what you need to know
• Taxes for the self-employed on the NPF: main aspects
• Efficient tax accounting for the self-employed on the NPF
• Step-by-step instructions for switching to the NPF
• Tax on professional income: important aspects and advantages
• How to deepen your knowledge of taxation

Restrictions of the Professional Income Tax Regime: What You Need to Know

The professional income tax (PIT) is an optimal solution for individuals and sole proprietors operating without registering as individual entrepreneurs. This tax regime allows them to sell their own goods, provide services, and perform work without the need for complex tax reporting. The PIT simplifies the tax system, making it more accessible and understandable for those who want to legally engage in entrepreneurship, minimizing administrative barriers.

The professional income tax (PIT) can be combined with work under an employment contract. It is important to remember that wages received under an employment contract are not taken into account when calculating the PIT. This means that if you work under an employment contract and simultaneously receive income from self-employment, you only need to take into account the income received from the professional income tax when calculating your tax liabilities. This approach allows you to optimize tax deductions and legally receive income from various sources.

There are certain restrictions on the types of activities for self-employed individuals. Some activities are subject to prohibition, in particular:

• sale of excisable goods and goods subject to mandatory labeling;
• resale of other people's goods and property rights;
• extraction and sale of minerals;
• entrepreneurial activities in the interests of third parties;
• delivery of goods on behalf of other persons.

All types of activities not prohibited by law can be carried out by self-employed citizens. This opens up broad opportunities for independent work and entrepreneurship. Self-employed individuals have the right to engage in various services and sales, which facilitates the development of their business and economic activity. The professional income tax (NPT) regime has certain restrictions. These restrictions apply to both types of activities and eligible income. It is important to note that not all entrepreneurs are eligible for this regime. For example, the NPT is not available to individuals already registered as sole proprietors or legal entities. Furthermore, there are restrictions on the maximum annual income, which must not exceed a certain limit. It is also important to remember that certain tax deductions are not permitted when applying the NPT, which may impact the overall tax burden. Understanding these features will help entrepreneurs choose the most appropriate tax regime and avoid potential problems.

• employment contracts cannot be concluded with employees (only hiring them under civil law contracts is allowed);
• the tax on professional income cannot be combined with other tax regimes;
• annual income must not exceed 2.4 million rubles.

If an individual who has not registered as an individual entrepreneur exceeds the established limit of 2.4 million rubles, they will have to pay a tax of 13% on the amount in excess of this threshold. For example, with an annual income of 3.2 million rubles, the tax will be 13% of 800 thousand rubles, which is considered ordinary income subject to taxation at the personal income tax rate. It is important to take these rules into account when planning your budget and preventing tax risks.

Individual entrepreneurs whose income exceeds the established limit are required to change their tax regime. To do this, you must submit a transition application within 20 days of exceeding your income threshold. Otherwise, you will be automatically transferred to the general tax system, which may create additional tax liabilities. It's important to monitor your income and respond promptly to changes to avoid unwanted consequences.

For a deeper understanding of tax systems, we recommend studying the materials of Skillbox Media. They offer up-to-date information and practical advice that will help you understand the intricacies of taxation.

Taxes for the self-employed on the professional income tax: key aspects

Individual entrepreneurs using the professional income tax (PIT) regime are required to pay the professional income tax, as well as VAT on the imported goods. For individuals using the PIT, only one tax is provided—the professional income tax, which replaces the standard personal income tax (PIT). This simplifies tax reporting and makes the process more transparent for entrepreneurs. It should be kept in mind that compliance with tax obligations is an important aspect of running a business in order to avoid potential fines and sanctions from tax authorities.

The tax rate on professional income varies depending on the source of income. Different types of activities imply different tax rates, which is important to consider when planning your finances. Professional income may come from providing services, selling goods, or performing work, and each category has its own taxation features. Correctly determining the source of income allows you to optimize tax liabilities and avoid potential problems with the tax authorities.

• 4% — when receiving income from individuals;
• 6% — when receiving income from legal entities.

The tax period for the professional income tax (PIT) is one calendar month. This tax must be paid no later than the 25th day of the month following the end of the tax period. For example, tax on income received in April must be paid no later than 25 May inclusive. Compliance with tax payment deadlines is important to avoid penalties and interest, as well as to maintain a good reputation as a taxpayer.

All taxpayers on the professional income tax (PIT) are entitled to a tax deduction of 10,000 rubles. This deduction is provided once and allows you to reduce the amount of tax assessed. While the tax deduction is available, the tax rate for professional income tax is 4%, which is reduced to 3%, and 6%, which is reduced to 4%. Using the tax deduction helps manage tax liabilities more effectively and optimize expenses.

If a self-employed person's monthly income from a legal entity is 15,000 rubles, then with the standard calculation of professional income tax (PIT), the tax amount would be 900 rubles (15,000 × 6%). However, using the reduced PIT rate of 4%, the tax will be equal to 600 rubles (15,000 × 4%). Thus, the deduction for the reporting month will be 300 rubles (900 - 600). The remaining deduction, which can be carried over to the next month, will be 9,700 rubles (10,000 - 300). All these calculations are performed automatically in the "My Tax" app, significantly simplifying the accounting and taxation process for the self-employed. Taxpayers who apply the professional income tax (PIT) are entitled to an exemption from paying insurance contributions. However, they can voluntarily make pension contributions through the "My Tax" app. In this case, the self-employed determine the amount of their contributions themselves, allowing them to manage their pension savings in accordance with their personal financial plans. It is important to consider that such deductions can have a positive impact on future pension provision.

Efficient tax accounting for the self-employed on the NPD

Self-employed individuals using the Tax Regime for the Self-Employed (NPD) enjoy many advantages, the most important of which is the elimination of the need to file tax returns. All interactions with the tax service can be conducted through the convenient mobile application "My Tax" or through the taxpayer's personal account. This approach significantly simplifies the process of accounting for income and paying taxes, allowing the self-employed to focus on their activities. The use of these digital tools contributes to more efficient business management and minimizes the time spent on tax obligations.

When receiving payment for goods or services, the self-employed must create a receipt. To do this, open the "New Sale" section in a special application. In this section, you must specify the name of the product or service, its price, select the buyer category—individual or legal entity—and enter their Taxpayer Identification Number (TIN). Properly completed receipts help ensure tax compliance and avoid fines, which is especially important for the self-employed.

After clicking the "Issue Receipt" button, the application automatically generates a receipt that can be sent to the buyer or customer. This functionality minimizes the likelihood of errors and significantly speeds up the sales process, making it more efficient. Automated receipt generation helps save time and improve customer service.

Each month, the tax service calculates the tax amount due based on the collected data. Tax payments must be made no later than the 25th of the following month. If there are no sales during the month, mandatory payments are not required. Compliance with these deadlines helps avoid fines and unpleasant consequences.

Step-by-step instructions for switching to the Professional Income Tax

Individuals seeking to become self-employed and meeting the criteria of the new tax regime (Professional Income Tax, PIT) can choose from several registration options. In this article, we will consider the main ways to register as self-employed.

• Through the "My Tax" mobile app. To access, you need your TIN and password from your personal taxpayer account or an account on the "Gosuslugi" portal. If you do not have access to your account, you can get it through the app by providing a scanned copy of your passport and a photo.
• On the Federal Tax Service (FTS) website, in the section for PIT taxpayers. You will also need your Taxpayer Identification Number (TIN) and password for your personal account or an account on the Gosuslugi portal.
• Using the Gosuslugi portal. Log in to your personal account, select the "Registration as Self-Employed" service, and follow the step-by-step instructions.
• At authorized banks. A list of such banks is available on the FTS website. It is recommended to use the bank where you have accounts to make the registration process easier.

After submitting the registration application, it is automatically sent to the tax service. Typically, the tax service reviews the application within six business days, but in practice the process may take less time. This allows for faster receipt of the necessary documents and easier business startup. It is important to keep in mind that processing speed may depend on the tax service's workload and the accuracy of the submitted data.

Notification of your registration status as a professional income tax (PIT) payer is sent to the taxpayer's personal account or bank account, depending on the application submission method. You can also easily check your registration status on the official website of the Federal Tax Service (FTS).

If you are a sole proprietor (SP) and use the patent taxation system, switching to the professional income tax (PIT) is only possible after the patent expires or after notifying the tax authorities of the termination of your business activities.

If you used other special tax regimes, such as the simplified tax system, automated system of simplified taxation, or agricultural tax, the transition to the new PIT tax regime is carried out in two stages. First, you must complete all current obligations under the selected regime, and then formalize the transition to the PIT. It is important to consider all the features and requirements associated with this process to avoid potential difficulties. Proper transition support will help you optimize your tax obligations and simplify doing business.

• Registration as self-employed using any of the methods listed above.
• Notification to the tax authorities of the termination of the previous special regime within one month of registration as a PIT payer. Please note that combining the NPT with other tax regimes is prohibited.

After registration, an individual entrepreneur must fulfill a number of additional requirements.

• Pay all outstanding insurance premiums, if any.
• No later than the 25th of the following month, pay the tax and submit a tax return for the period preceding the transition to the NPT.

When switching from the general tax system (OSNO) to the professional income tax (PIT), it is necessary to take several key aspects into account. The transition process includes mandatory actions that will help you properly adapt to the new conditions. An important step is to notify the tax authorities of your intention to switch to the NPT. It should also be taken into account that when using the NPT, you are exempt from paying a number of taxes, such as VAT and income tax, which can significantly simplify your accounting. However, it is important to remember the income limits that must be met to apply the NPT. Maintaining income and expense records remains important, albeit in a more simplified form. A proper understanding of all the nuances of the transition to the NPF will allow you to effectively manage your financial flows and minimize tax risks.

• Calculate personal income tax on income from entrepreneurial activity for the period from the beginning of the year until the date of registration as a taxpayer of professional income, submit a declaration and pay the tax without the established deadlines.
• Calculate VAT, submit a declaration and pay the tax in accordance with the usual deadlines.
• Recalculate the fixed amounts of insurance premiums and pay them within the established deadlines.

Tax on professional income: Important aspects and advantages

• Tax on professional income (NPI) is a simplified tax regime created to support self-employed citizens. Its main advantage is that there is no need to maintain complex records and file tax returns.
• This regime is available both to individuals without registration as individual entrepreneurs, and to individual entrepreneurs who meet the criteria for the NPT.
• Under the NPT, only income tax is paid, which makes it more attractive for the self-employed. Insurance contributions are not mandatory, but the self-employed can make voluntary contributions to pension savings.
• Interaction with the tax authorities is carried out through the My Tax mobile application. In this application, the self-employed record their income, and the tax service automatically calculates the amount of tax to be paid. This helps avoid unnecessary paperwork.
• To start working under the NPT, you must register as self-employed. This can be done through four channels: the My Tax mobile application, your personal account on the tax service website, the Gosuslugi portal, or through an authorized bank. It is important to remember that if an individual entrepreneur previously operated under a different tax regime, he must notify the tax authorities about the transition to the NPT.

How to deepen your knowledge of taxation

• If you are just starting to study tax systems and are looking for the best option for your business, we recommend reading our article - "Taxation systems: what they are, what types exist and how to choose."
• In this material, we consider in detail the simplified tax system (STS): who it is suitable for and how to properly transition to it.
• As of July 1, 2022, a new experimental tax regime - the automated simplified tax system (ASTS) - was introduced in a number of regions of Russia. Find out more about this in the Skillbox Media article.
• Regardless of the chosen tax system, it is important to submit reports and pay taxes on time. You can learn how to do this correctly in the Skillbox course "Taxes and Taxation." This course will cover all existing tax systems, teach you how to maintain tax records, prepare reports, and work with 1C software.
• Skillbox also offers the program "Finances for Entrepreneurs," which will be useful for those who want to choose the right tax system, understand reporting, and effectively interact with the accounting department. This program will teach you how to build financial models and plan expenses, which will help you when starting your own business.

Useful materials from Skillbox Media for entrepreneurs.

• What to choose: an individual entrepreneur or an LLC? We will tell you about the advantages and disadvantages of each option.
• How to open an individual entrepreneur in 2023: a step-by-step guide.
• Accounting: why it is needed, how it works, and how to organize it correctly.
• Company financial performance report: what it is and how to compile it.
• Financial model: why it is necessary for a business and how to develop it.