SME or Self-Employed: Which Is Better For You?

self employed

SME or freelance? That is the question. Establishing a company requires time, effort, and a significant initial investment. For this reason, registering as a self-employed person is a much simpler, cheaper process that involves significantly less paperwork. However, there are notable legal, fiscal, and accounting differences between one figure and another. Take note! 

Differences Between SMEs And Freelancers

When undertaking and creating a business project, you must choose the legal form, that is, the identity that your company will legally assume. This decision will depend on several aspects, such as the number of partners, capital, or legal responsibility. 

The self-employed carry out their professional activity as a natural person, assuming at the same time specific responsibilities and tax obligations. On the other hand, SMEs usually establish their legal personality as commercial companies.

Responsibilities

Companies are made up of more than one person, but we find different corporate formulas with specific characteristics and conditions within this legal form. Most SMEs are usually incorporated under the Limited Company formula, whose share capital cannot be less than € 3,000. 

The responsibility before clients, suppliers, and creditors is not the same either, since the self-employed have unlimited liability. That is, they will have to respond to their debts with their assets. On the contrary, companies respond to third parties with the support of the company. 

Commercial Differences

The self-employed are not required to register in the Mercantile Registry, but companies are. This slight difference gives companies greater security and reliability than the self-employed, which is why companies and administrations prefer to establish contacts with the former. 

Fiscal Obligations

The tax differences between SMEs and the self-employed are remarkable, both in paying taxes and deductions. 

The self-employed must pay the Personal Income Tax (IRPF), while companies do so by the Corporation Tax (IS). Here it should be remembered that the personal income tax is progressive, but the IS works with a fixed rate of 25%. 

In the case of VAT, the operation is very similar for both legal forms. Both SMEs and the self-employed must submit the quarterly and annual VAT self-assessment. But, in addition to VAT, they must also pay the Economic Activities Tax and present the yearly Declaration of operations to third parties, if applicable. 

Concerning deductions, the self-employed can only deduct 50% of the expenses related to the activity. On the other hand, SMEs can be deducted up to 100%, which is more advantageous because they can considerably reduce their tax burden.

Accounting Obligations

The accounting of an SME requires greater control, as it must comply with the General Accounting Plan, and they are required to present an inventory book and annual accounts. 

In this sense, having a good billing and management program that allows you to automate and simplify your business management is essential.

Also Read: Big Data To Help The SDGs

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