Severance payments for the termination of self-employed contracts will not qualify for the 30% reduction

The legal nature of severance payments received by economically dependent self-employed workers has raised doubts regarding their tax treatment under Personal Income Tax (IRPF). Recently, the Directorate General of Taxes (DGT) has clarified the treatment applicable to these earnings following the termination of a commercial contract.

What the DGT has ruled

The advisory body has determined that the compensation received for the termination of a contract of an economically dependent self-employed person must be fully integrated as income from the economic activity itself. In this sense, the DGT rules out the application of the 30 percent reduction provided for in Article 32.1 of the IRPF Law.

The criteria are based on two main reasons:

• The severance payment is not the result of a generation period exceeding two years.
• The concept does not qualify as income obtained in a notoriously irregular manner over time.

Furthermore, the termination of the contract is not considered a cessation of activity nor a substitution of economic rights of indefinite duration, which prevents access to the aforementioned tax benefit.

What this means for you

If you are a self-employed professional working under a scheme of economic dependency and you receive compensation following the end of your contractual relationship, you should know that this amount will be taxed at the general rate of your business income. You will not be able to apply the reduction for irregular income that is typically applied to other types of extraordinary income.

This criterion implies that the tax burden on the severance payment will be higher than some professionals might expect, as they will be unable to reduce the taxable base by one third through the irregularity mechanism.

What you should do

In a situation of contractual termination, it is necessary to analyze the composition of the severance payment and its fit within current regulations. Given that the classification of this income depends on the nature of the contract and the cause of the termination, each situation must be assessed individually to ensure compliance with tax obligations and avoid possible requests from the Administration.