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How to reduce advances for self-employed persons

As every self-employed person knows, they have to make monthly social security and health insurance payments.

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The amount of these advances depends on the income earned by the self-employed person in the previous year. The life of a sole trader can be turbulent and profits from the previous period are no guarantee of future profits. Let’s now take a brief look at how to react to a situation where your profits fall dramatically but your advances remain high because you earned a lot last year.

Have you changed jobs since the New Year or lost an important client? Has your income dropped dramatically but your obligation to pay social security and health insurance contributions is still there? Don’t despair, there’s a solution. But it all depends on your activity. The authorities won’t do anything on their own because they continue to assume that your income hasn’t changed. In addition, they will base the calculation of your advance payments on the report you must submit to them by April 30 (unless you have a tax advisor).

Ask for a reduction in your advance payments

The solution is simple – ask the Czech Social Security Administration and the Health Insurance Authority to reduce the advance payments for these contributions due to a reduction in your income. The application is made on a special form: ‘Application for reduction of the monthly assessment base for self-employed persons‘ with the Czech Social Security Administration or ‘Application for reduction of the advance payment of insurance premiums for self-employed persons‘ with the General Health Insurance Company.

But it doesn’t stop there. You still need to prove that your income has actually decreased. The difference in income between last year and this year must be at least one third. This is calculated as the difference between your average income last year and this year, using the last three consecutive calendar months as the basis for the calculation. We have prepared the following table to illustrate this:

Měsíc 2015 …………… výdělek Měsíc 2016 …………… výdělek
leden 2015 …………… 30 000 Kč leden 2016 …………… 15 000 Kč
únor 2015 …………… 60 000 Kč únor 2016 …………… 30 000 Kč
březen 2015 …………… 60 000 Kč březen 2016 …………… 20 000 Kč
celkem …………… 150 000 celkem …………… 65 000 Kč
Rozdíl příjmů v roce 2016 oproti roku 2015 je 85 000 Kč, což je více než 1/3

The table above shows that income has fallen by more than ⅓ in the first three months of 2016, and therefore it is possible to apply to the authorities for a reduction in advances. The self-employed can do so for the first time during April.

By how much can the advance payment be reduced?

The Czech Social Security Administration or the health insurance company decides whether to reduce the advance payment according to its internal methodology. It applies that advances cannot be reduced below the legal minimum (in 2016, the minimum advance for self-employed persons is CZK 1,972 for social insurance and CZK 1,823 for health insurance).

What about overpayments or underpayments?

The good news is that even if you overpay, so to speak, the authorities will reimburse you for the overpayment at the end of the year when you file your tax return. Alternatively, you can use the overpayment for the next year’s advance payments. Of course, it’s worth not overpaying unnecessarily, reducing the advance on time and using the money for business development or personal consumption.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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