In this article, we explain how your new situation affects flat-rate tax – when it pays off, what to watch out for and what options are available. In the next instalment, we will focus on self-employed mothers using lump-sum expenses.
Maternity benefit (PPM)
Flat-rate tax has been with us for a few years now. Let us recap what it involves – one monthly payment includes social security, health insurance and income tax. However, if you pay only flat-rate tax, you will not become entitled to maternity benefit (PPM). To qualify, you must pay what is known as sickness insurance, which is entirely voluntary.
Last year, we looked in considerable detail at how sickness insurance for prospective parents works, how long you have to pay it, how much you pay, how much you receive and so on. Last year’s article may also interest fathers-to-be from the perspective of paternity leave. This year, we would like to follow up with the practical side of things once the baby is born.
Prohibition on working in your business
If you paid sickness insurance, met the conditions and arranged to receive PPM, congratulations. You have completed the first part successfully. What is less often discussed, however, is that you must not carry out self-employed work while receiving PPM. If you have employees, you may invoice for their work.
So, if you are an architect without employees, you must not carry out or invoice for your work during this period. If you run a grocery shop as a self-employed person, you may continue selling goods provided your employees actually perform the work.
What can you do?
Most self-employed people in the flat-rate tax scheme whom we have met work on their own without employees. In these situations, we recommend suspending your business activity while receiving PPM. You cannot invoice anyway, so at least you avoid the monthly payments. Once your PPM ends, you can happily resume your business activity.
Without a suspension, absurd situations can arise. I had a client whose PPM was 20 thousand Kč a month. As a lawyer in the 3rd flat-rate tax band, her monthly payment was 26 thousand Kč. She would therefore have had to pay an additional 6 thousand Kč ‘out of her own pocket’ each month during a period when she was not allowed to invoice.
Of course, women running businesses who pay in the 2nd and 3rd flat-rate tax bands can, after the end of a year in which their income drops sharply because of a new addition to the family, file a Notification of a Different Flat-Rate Tax Amount. The state will then refund the difference between the bands. But without actually suspending self-employment, you will always have to pay at least the payments for the 1st band for the months spent receiving PPM.
Parental allowance (RP)
Every mother receives parental allowance – currently 350.000 Kč (or 525.000 Kč for multiple births). While receiving parental allowance, you may once again carry out self-employed work and issue invoices.
Concurrent employment
Within the flat-rate tax scheme, you can earn extra income under a DPP or DPČ agreement without pension insurance contributions, provided income tax is withheld from the income (no Taxpayer Tax Credit Declaration has been signed). These agreements may continue regardless of whether you are receiving PPM or RP. The exception is working during the six weeks after childbirth – the Labour Code prohibits performing employment duties during this period.
To conclude
Maternity and running a business do not have to be mutually exclusive – you just need to know how to set things up correctly. Flat-rate tax can make life significantly easier, but when motherhood arrives, it is worth slowing down for a moment and considering what really benefits you.
Remember that sickness insurance is crucial if you want to qualify for maternity benefit. And suspending your business while receiving PPM can save you plenty of worries and unnecessary payments.
If you are still unsure, feel free to contact us, the women from the accounting jungle. 🌿 We will gladly help you navigate it all simply, clearly and without stress.