Our mission since day 1 has been to simplify the financial management of the self-employed. We want self-employment to be as easy as being an employee. If we're honest, that's a long way to go and there are many bureaucratic and financial challenges to overcome. German tax law in particular is a jungle in which it is almost impossible to survive without help as a self-employed person.
Finances of employees and the self-employed
Let's just compare an employee with a salary of 5,000 euros a month and a self-employed person with a profit of 5,000 euros per month. The employee does his job, receives a pay slip at the end of the month and receives his salary. With tax class 1, that's around 2,900 euros. He can spend this money completely and does not have to worry about taxes and (social) insurance. He doesn't even have to file a tax return. As soon as he gets the salary he is safe and can live his life completely carefree.
The self-employed works the whole month (not infrequently more than 40 hours / week) and after paying all the bills has an increase of 5,000 euros. Financially it is the same for her. But she not only has the 5,000 euros in her account, she also has the sales tax of around 1,000 euros on top in her account. Of the 6,000 euros, she then has to make the advance sales tax declaration herself, cover income tax and trade tax, has to take care of his health insurance, provide for old age and build up a reserve for times when there is no order. So she has 6,000 euros in her account, but she only owns about 2,900 euros. The rest belongs to different authorities, such as the tax office or health insurance.
Self-employed people have a lot of work to do to find out how much they have actually earned. Self-employment is not as permanent as being an employee and it may well be that you have a net income of 2,900 euros in one month, but only 800 euros in the next month and 5,500 euros in the month thereafter. The tax rate and the proportion that should be set aside for tax are constantly changing.
Financial and legal uncertainty for the self-employed
But the real disadvantage is permanent uncertainty. Even if the order situation is perfect, it is not the case that the self-employed can live as carefree as employees. You have to make a regular advance tax return, pay quarterly income tax and trade tax and submit several tax returns once a year (sales tax, income tax and trade tax). Then there is an additional payment or a refund.
And even then you are still not sure. The tax office can knock on the door up to 10 years later and carry out an audit. The invoice that you write and pay tax today can still be checked and questioned in 8 years. That would be unthinkable for employees.