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Will freelancers benefit from Germany’s €300 energy allowance?

Germany's traffic-light coalition has unveiled two energy relief packages in as many months, but many self-employed people are wondering whether they'll end up slipping through the net. Here's what you may be entitled to as a freelancer in Germany.

A freelancer works on a laptop in a cafe in Hamburg
A freelancer works on a laptop in a cafe in Hamburg. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

It hasn’t escaped many people’s knowledge that energy prices are currently going through the roof, with many people facing short-notice cancellations of cheaper contracts or seeing their heating costs double overnight.

The war in Ukraine has exacerbated the energy crisis and with further sanctions expected to be levelled at Russia, the situation could be set to worsen yet again.

In an attempt to support struggling households, the traffic-light coalition of the SPD, Greens and FDP has compiled two packages of measures that includes tax relief, a €9 transport ticket, a Kinderbonus of €100 for parents, and much more.

The flagship measure that caught everyone’s eye in the latest package, however, was a €300 heating allowance for taxpayers.

For those in employment, receiving the money should be relatively simple: it will simply pay paid out by employers on top of the regular salary. It will therefore be subject to tax, meaning that those with higher incomes will ultimately benefit less than those on lower incomes.

READ ALSO: Who benefits the most – and least – from Germany’s energy relief measures?

For freelancers and self-employed people, however, the situation is a lot less clear. 

In response to a question on how freelancers could access the additional financial support, the Finance Ministry told The Local: “The details of the relief package agreed upon by the coalition committee at its meeting on March 23rd 2022 will be worked out between the respective ministries involved and responsible with the aim of implementing the envisaged measures quickly.”

In plain English: they’re still working on it. Nevertheless, here’s what we know so far. 

Will freelancers and the self-employed be entitled to the €300 allowance?

Yes! The measure is aimed at all taxpayers that fall into tax brackets 1-5, meaning freelancers as well as employees should be entitled to the money.

For those who pay regular advanced tax payments, the situation is relatively simple. As the resolution paper states: “Self-employed persons receive an advance via a one-time reduction of their advance income tax payment.” 

However, since the allowance is subject to tax, it’s currently unclear how this would be calculated to start with, though there are two likely options.

The first is that all freelancers who pay advanced tax receive the full €300 discount on one or more of their payments. This €300 discount will then be counted as a taxable income on their next tax return and may therefore lead to slightly higher tax payments for the following year (depending on earnings). 

The other option is for the tax office to factor in the corresponding tax based on the freelancer’s previous earnings in addition to the €300 and deduct this from the allowance before paying it out. This would mean substantially less relief up front for those who are in a higher tax bracket. 

READ ALSO: Cheap transport and tax cuts: What Germany’s energy relief package means for you

What if I don’t earn enough to pay tax – or don’t pay tax in advance? 

This is much less clear, and at the time of writing, the Finance Ministry hadn’t yet responded to a request to clarify this. 

We assume that for this group of people, the allowance would be paid out as a kind of tax rebate on the 2022 tax return. The upside of this is that lower-earning freelancers would still be entitled to the full amount; the downside would be that the money wouldn’t be paid out for at least another year or so.

The Elster tax return portal

The ELSTER German tax return portal. Photo: picture alliance/dpa | Marijan Murat

If low-earning freelancers or self-employed people also receive housing benefit or basic income support, it’s possible they will be eligible for the heating subsidy instead. This is a one-time €200 payment that will be paid out to recipients of certain social benefits such as income support, housing benefit and BAföG, which is expected to be paid out in the next few months.

At the start of next year, the government will then take a closer look at the amount of money that welfare recipients are given to see if this still matches the realities of the volatile energy market. 

What other measures could I benefit from as a freelancer?

It’s very important to note that the €300 heating allowance is far from the only measure that freelancers and self-employed people can take advantage of. The two mobility measures – the €9 monthly travel ticket due to come into force on June 1st and a reduction in fuel taxes for drivers – are designed to be applicable to most people, regardless of their income or employment status.

The same goes for a cut in the Renewable Energy Act (EEG) levy, which should shave a few cents off each kilowatt hour of energy from July 1st, and the Greens’ “climate money” policy, which should see households receiving a rebate on the CO2 tax through their tax ID at some point next year. 

Self-employed people with children will also be eligible for a €100-per-child Kinderbonus to help cover household bills.

There are also a number of tax relief measures in the pipeline, including:

For an in-depth look at some of the key tax rules that are changing this year, check out our recent article: 

Everything you need to know about your German tax return in 2022

Do you have any burning questions about the energy relief package and what you’re entitled to? Is the government doing enough for freelancers and the self-employed? Let us know by emailing [email protected]

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ENERGY

How electricity prices are rising across Germany

As the year draws to an end, price comparison portals have observed huge spikes in electricity costs across Germany - though the scale of the price hikes vary across different regions.

How electricity prices are rising across Germany

According to analysis carried out by comparison portal Check24, there were at least 580 cases of price increases in the basic electricity supply at the beginning of the year, with around 7.3 million households affected.

Electricity costs increased by an average of 60 percent, the analysis found, though in some cases were much higher. In the case of the Cologne-based supplier Rheinenergie, a kilowatt hour of electricity has gone up to 55 cents – 130 percent higher than the previous price. 

Comparison portal Verifox, which conducted its own analysis, found that prices were rising by an average of 54 percent across the board. 

“The new year is beginning with a massive wave of price increases for electricity,” said Verifox energy expert Thorsten Storck.

Analysts also noted strong regional differences in the scale of the price increases, with Munich and Cologne topping the list for the most expensive electricity. 

In Munich, a kilowatt hour of energy will cost 61.9 cents from January, compared to 55 cents in Cologne.

Meanwhile, MVV Energie in Mannheim, Baden-Württemberg, will charge almost 45 cents per kWh for its basic supply from January onwards – instead of the previous 27 cents. The East German energy supplier EnviaM, based in Chemnitz, will charge 48.1 cents in the future – 20.1 cents more than before.

In Potsdam in Brandenburg, the region supplier is raising its electricity prices by around 21 percent to 46.5 cents per kilowatt hour.

READ ALSO: ‘It’s going to be a bleak winter’: How people in Germany are coping with the energy crisis

Why are the prices so high? 

In a statement explaining the imminent jump in prices, Rheinenergie pointed to the huge increase in their procurement costs and other overheads.

“Compared to the previous year, prices on the electricity exchanges have risen by more than 300 percent,” they explained. “At their peak they had increased more than tenfold. In addition, the grid fees are also rising.” 

The extreme spike on the markets is yet another consequence of Russia’s invasion of Ukraine, which has sent the price of natural gas soaring.

An electricity pylon near a motorway in Lower Saxony.

An electricity pylon near a motorway in Lower Saxony. Photo: picture alliance/dpa | Moritz Frankenberg

Though gas isn’t the only component involved in producing electricity – much cheaper renewables also account for a decent portion of Germany’s supply – it does have a significant impact on prices. That’s because of something known the “merit order,” in which the most expensive gas-fired plant used to produce electricity is decisive in setting the cost.  

READ ALSO: Germany’s Scholz dims lights on Christmas tree amid energy squeeze

What can customers do?

How to handle the latest wave of price increases may in part depend on who your current supplier is.

According to Udo Sieverding, an energy expert at the North Rhine-Westphalia consumer advice centre, people using a private supplier should consider whether it would make more sense to fall back on the so-called “basic supply.” 

“Customers outside the basic supply should even consider making use of the special right of termination in case of price increases and let themselves fall into the basic supply,” he said. 

The basic supply – or Grundversorgung – is generally provided to people who don’t set up their own electricity or energy contract with another supplier. Prices are set on a regional level and used to be considered expensive, but in recent months they have generally slipped below the rates offered by private companies. 

For people already using the basic supply, the situation is a bit trickier.

“The electricity price increases at the turn of the year are in part drastic,” said Sieverding. “Unfortunately, the new customer tariffs via the intermediary portals are even higher, which means that a change of supplier won’t lead to savings in most tariff areas.”

That means it could make sense to sit tight for now and accept the higher prices, but keep an eye on any deals that could be offered in the coming months. 

READ ALSO: EXPLAINED: How to save money on your German electricity bill

Will electricity stay this expensive in the future? 

Energy prices were rising dramatically even before Russia’s war on Ukraine – in part due to pandemic supply issues – and experts don’t think they’re set to drop anytime soon. 

According to analysis by Check24, a sample household with an annual consumption of 5000 kWh paid an average of 29.4 cents per kWh in November 2020. One year later, it was 31.6 cents. Currently, the average is 42.7 cents.

Apartments in Lower Saxony

A few apartments are lit up in a tower block in Lower Saxony. Photo: picture alliance/dpa | Julian Stratenschulte

Electricity market expert Mirko Schlossarczyk, who works for consultancy firm Enervis, said 40 cents per kilowatt-hour was likely to be the new normal in 2023 and 2024, and that prices could even rise to 50 cents per kilowatt-hour after that. 

Although wholesale electricity prices could fall again significantly in the future, as a result of a prospective drop in gas prices and the increased expansion of renewable energies – the noticeably larger share of the end customer price would be accounted for by levies, surcharges, fees, and taxes, Schlossarczyk said.

“We will not see a return to 32 cents (the pre-war price) in the coming years simply because of the comparatively high wholesale electricity price level and the already announced increases in grid fees,” he added. 

But isn’t there supposed to be a price cap coming?

That’s right: from March 2023, the government plans to introduce a cap on electricity prices that will apply retrospectively from January.

However, this still won’t take electricity bills back to pre-war levels. Instead, 80 percent of a household’s normal electricity consumption will be capped at a price of 40 cents per kilowatt hour, while any excess over this will be billed at ordinary market prices.

That is likely to mean that households that don’t reduce their consumption by at least 20 percent still face much higher bills, and even those that do will pay an average of eight cents more for a kilowatt hour of electricity than they were in 2021. 

READ ALSO: Germany plans to cap energy prices from start of 2023

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