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Practical manual for Income Tax 2019.

Practical Case

Special category bar (heading IAE : 673.1), located in rented premises in the city of Salamanca, where since its opening in 1995, 3 full-time salaried employees have worked with the owner according to the Collective Agreement of the sector, which establishes a working day of 1,792 hours per year. The owner does not carry out any other economic activity.

In the previous year (2018), the number of units of the "salaried personnel" module amounted to 3 people. As regards the 2019 financial year, the activity has been developed with the following detail:

  • On September 1, 2 new workers over 19 years of age were hired. They remained in the company as of December 31, 2019, each of whom has totaled 630 hours of work in that year. Total remuneration paid to staff in 2019 amounted to 39,500.00 euros.
  • The bar is 10 metres long and has 8 tables for four people.
  • The contracted electrical power is 35 kilowatts and a type "B" gaming machine is installed on the premises.
  • Of the fixed assets assigned to the activity, the owner only keeps invoices for the coffee machine, a thermal display case, the air conditioning installation and the 8 tables with their chairs. The data contained in your investment assets register are as follows:
    ElementBeginning of useCost priceAccumulated amortization as of 31-12-2018
    Furniture (tables and chairs) 01-06-1999 1,500 euros 1,500 euros
    Coffee maker 01-06-2014 9,400 euros 8,400 euros
    Thermal display case 01-07-2015 4,000 euros 2,500 euros
    Air conditioner installation 01-08-2015 6,600 euros 3.900 euros

  • To replace the tables and chairs in the establishment, the owner purchased 8 new tables and 32 chairs on October 1, 2019 for 2,400.00 euros, without the unit value of any of said pieces of furniture exceeding the amount of 601.01 euros. The furniture was installed in the bar on the 15th of the aforementioned month. The old furniture has been sold for 510.00 euros.

  • On 10 August 2019, a flood occurred in the bar, causing damages whose repair amounted to 1,200.00 euros, without the insurance policy of the owner covering the aforementioned risk. On September 1, the owner of the activity submitted a document to the Tax Agency corresponding to his tax domicile, reporting the aforementioned facts and providing an invoice for the repairs carried out along with the document proving the flooding issued by the local fire service. The competent services of the Tax Agency Administration have verified the certainty of the cause that motivated the extraordinary expense and its amount.

Solution:

Phase 1: Determination of prior net performance.

  1. Determination of the number of computable units of each of the modules applicable to activity .
    • Salaried staff:
      • 3 people all year round: (3 x 1,792 hours ÷ 1,792) = 3.00 people
      • 2 people hired on 01-09-2019: (2 x 630 hours ÷ 1,792) = 0.70 people
      • Total: 3.70 people
    • Non-salaried staff. The owner: 1.00 person
    • Electrical power. Contracted kilowatts: 35.00 kW.
    • Tables. Tables for 4 people: 8.00 tables
    • Bar length. Linear meters: 10.00 ml
    • Type "B" recreational machines. Number of installed machines: 1.00 machine
  2. Application to the number of units of each module of the annual performance per unit before amortization established in Order HAC/1264/2018, of November 27 ( BOE of the 30th).
    Previous net performance (sum) 50,274.20
    ModuleNo. of unitsYield per unitPerformance per module
    1. Salaried staff 3.70 4.056,30 15,008.31
    2. Non-salaried Staff 1.00 15,538.66 15,538.66
    3. Electrical power 35,00 321.23 11,243.05
    4. Tables 8.00 233.04 1,864.32
    5. Bar length 10.00 371.62 3,716.20
    6. Type "A" machines 0.00 957.39 0.00
    7. Type "B" machines 1.00 2.903,66 2.903,66

Phase 2: Determination of reduced net income.

  1. Minority for employment incentives .

    1. Minority coefficient due to increase in the number of salaried people.

      Once the condition of having increased the workforce in 2019 compared to the number existing in 2018 has been met, due to the two workers hired on September 1, 2019, the following results:

      Number of units of the "salaried personnel" module in 2019: 3.70 people

      Number of units of the "salaried personnel" module in 2018: 3.00 people

      Increase in the number of units of the "salaried personnel" module (3.70 -3.00): 0.70 people

      Minority coefficient due to increase in the number of salaried people:

      0.70 (increase in the number of units of the "salaried personnel" module) x 0.40 = 0.28 people.

    2. Reduction coefficient by sections of the number of units of the "salaried personnel" module.

      Excluding the increase of 0.70 people to which the previous reduction coefficient was applied, the coefficient by sections is applied to 3.00 units of the module as follows:

      Up to 1.00: 1.00 x 0.10 = 0.10

      Between 1.01 and 3.00: 2.00 x 0.15 = 0.30

      Reduction coefficient by sections (0.10 + 0.30): 0.40

    3. Reduction coefficient for employment incentives.

      It is the result of adding the reduction coefficients by increase in the number of salaried people and by sections of the number of units of the "salaried personnel" module: 0.28 + 0.40 = 0.68

    4. Amount of the reduction for employment incentives.

      It is the result of multiplying the reduction coefficient by the annual performance per unit of the "salaried personnel" module: 0.68 x 4,056.30 = 2,758.28 euros.

  2. Minority due to investment incentives .

    Using the amortization table contained in Order HAC/1264/2018, of November 27 ( BOE of the 30th), and applying the maximum linear amortization coefficients set therein, the amount of the reduction for investment incentives is determined as follows:

    Minority due to investment incentives (sum) 6.050

    Note to the table:

    (1) The input VAT is not included in the acquisition value of the fixed assets, since the activity is subject to the simplified VAT regime.(Back)

    (2) Despite having been in operation in the company until its closure due to sale, the old tables and chairs cannot be depreciated in 2019, since as of 31-12-2018 these elements had already been fully depreciated.(Back)

    (3) Since the amount resulting from the application of the maximum coefficient is higher than the amount pending amortization as of 31-12-2018, which amounts to 1,000 euros (9,400 8,400), the amortization has been carried out for this last amount.(Back)

    (4) New tables and chairs can be freely depreciated because their unit value is less than 601.01 euros and because, in addition, the total amount of the new assets acquired in 2019 does not exceed the amount of 3,005.06 euros.(Back)
    Heritage elementValue acquisition(1)Maximum coefficientAmortizable periodAmortization
    Furniture (tables and chairs) 1,502 --- --- --- (2)
    Coffee maker 9.400 25% All year 1,000(3)
    Thermal display case 4.000 25% All year 1,000
    Air-conditioning 6.600 25% All year 1,650
    New tables and chairs (freely amortized) 2,400 100%(4) Irrelevant 2,400

  3. Determination of reduced net income .

    Previous net performance: 50,274.20

    less: Reduction for employment incentives: 2,758.28

    less: Minority due to investment incentives: 6.050,00

    equal to: Reduced net return: 41,465.92

Phase 3: Determination of net module yield.

The only corrective index applicable in this example is the excess correction index, since the reduced net return exceeds the amount of 30,586.03 euros. Therefore:

Net return on modules = 30,586.03 + [1.30 x (41,465.92 – 30,586.03)] = 44,729.89 euros.

Phase 4: Determination of the net return of the activity.

The general reduction of 5% must first be applied. Furthermore, since all the requirements established for this purpose have been met, the amount of the extraordinary expenses caused by the flood that occurred on August 10 must be deducted. Therefore:

Net module yield: 44,729.89

less: General reduction (5% s/ 44,729.89) = 2,236.49

less: Extraordinary expenses due to exceptional circumstances: 1,200.00

equal to: Net income from the activity: 41,293.40

Phase 5: Determination of the reduced net return of the activity.

Since there are no returns with a generation period of more than two years or which are considered to be obtained in a notoriously irregular manner over time, the reduced net return from the activity coincides with that determined in phase 4 above, which amounts to 41,293.40 euros.

Comment : Capital gains or losses obtained as a result of the transfer of assets related to the activity (chairs and tables) must be declared in section F2 of the declaration.

Determination of the total reduced net income of activity .

Since the income from economic activities exceeds 12,000 euros, the reduction in article 32.2.3 cannot be applied. of the Personal Income Tax Law so the total reduced net income coincides with the total reduced net income of the activity, which amounts to 41,293.40 euros.