The RUT tax deduction – a descriptive analysis of the firms and the entrepreneurs
This study is a descriptive analysis of what is known as the RUT tax deduction for domestic household-related services, and focuses on the firms, the entrepreneurs and the employees that perform these services. Our results show that both the number of firms and the number of employees have increased during the period studied.
The reform appears to have had the greatest effects during the early years of the reform, with a gradual decline over time. The percentage of female entrepreneurs is also high and further on the rise, which may indicate that the reform has given women an opportunity to start businesses.
RUT – a labour market policy measure viewed from an economic policy perspective
This reform was introduced for reasons related to labour policy. Its purpose was to create jobs for those with low educational attainment by increasing the demand for domestic, household-related services. In this study, the Swedish Agency for Growth Policy Analysis (Growth Analysis) has chosen to base the analysis primarily from an economic policy perspective, which is justified in light of the fact that these services are performed by firms. The RUT tax deduction was introduced on 1 July 2007 as a tax deduction for purchasers of household-related services. This reform enabled individuals to deduct 50 per cent of their expenses for household work on their tax return, up to a maximum of SEK 50,000 per taxpayer and year. In 2009, what become known as the invoice model was introduced. This enabled firms to deduct the value of the tax reduction directly on the invoice sent to the customer, and apply for the balance of the invoice from the Swedish Tax Agency. This study focuses on firms that performed RUT services during the period from the introduction of the invoice model until 2015. Consequently, changes that took place in 2016 and 2017 in the form of a reduction in the maximum tax deduction and as regards the range of services for which the deduction could be taken, are outside the scope of this study. This study is based on detailed recorded data regarding the firms, their entrepreneurs and their employees.
The idea and limitations of this report
In this report, Growth Analysis has prepared a descriptive statistical analysis of the changes related to economic and employment policy that have taken place from 2010 to 2015 in connection with the implementation of the RUT reform. Growth Analysis has analysed RUT company trends and development, as well as examined the nature of the individuals who start, or accept employment in, firms that perform RUT services. In this way, we can get a better picture of how these firms have developed, and how the RUT reform has changed the employment status of marginalized groups, especially for groups with low educational attainment who often encounter difficulties in entering the workforce. At present, we cannot make any conclusions regarding causal effects of the reform as there have been a large number of underlying factors that may have affected the results. Growth Analysis wishes to emphasize that during this stage we have been studying trends after the RUT reform, which should not be confused with effects that can be wholly attributed to the reform. In order to reach conclusions on causal effects regarding firms and employment, we will need to perform an impact assessment. This will be carried out and completed during the spring of 2019.
A growing number of firms in major cities and neighbouring municipalities
The results of this report are based on an analysis of RUT specialized firms, as they are defined by the Swedish Tax Agency. This specific category of firms is very much associated with a small number of sectors, especially cleaning of homes and other premises. Our primary result shows that the number of RUT specialized firms has increased during the past five years by about two-thirds to more than 10,000 firms. Most of this increase took place around the beginning of this period, and has lessened over time.
About 70 per cent of the firms are located in major cities or in municipalities close to a major city. During the period studied, there was also an increase in the number of services undertaken by the average company. The survival rate of these firms is high, but many of the firms do not remain as RUT specialized firms over time, but instead broaden the range of services they offer. We have observed that entry into, and exit out of, being classified as a RUT specialized company accounts for a large part of the turnover in this group. Most RUT specialized firms are sole proprietorships, but this percentage has decreased over time. These firms are relatively small, and are often micro-firms with two to nine employees, and this category has increased over time. Less than one per cent has more than 50 employees. About 20 per cent of the firms can also be classified as ROT (home repairs, renovations and maintenance) specialized firms. These firms perform both RUT and ROT services. They are more often located outside of major metropolitan areas than solely RUT specialized firms are.
More female entrepreneurs
Half of the RUT specialized firms are operated by women, the majority of whom have organized their business as sole proprietorships. This percentage is significantly larger than the 30 per cent which applies to businesses in general. The percentage of foreign-born entrepreneurs is significantly higher among women, and accounts for about half of the female entrepreneurs, but represents only a quarter of male entrepreneurs. As to educational attainment levels among the entrepreneurs, statistics show that the percentage of highly-educated persons is increasing over time, both among men and women.
Significantly more employees in household-related services and more jobs for persons with low educational attainment
Many new and small RUT specialized firms with a “decent” survival rate were established during the period studied. The number of employees working in RUT specialized firms represent a small percentage of the total Swedish workforce (0.7 in 2015). We can conclude that the number of employees in RUT specialized firms has shown a constant increase during the period studied, but that of those employed, a relatively large percentage has used RUT work as a way to generate a supplementary income.
By studying the previous employment status of those working in RUT specialized firms, we can get an idea as to whether they were formerly in other employment, or were previously unemployed. The results show that 20 per cent, which is a relatively large percentage, compared with the entire population of those working for a living, had no employment during the preceding year. The RUT specialized firms thus appear to be relatively good at recruiting a large percentage of unemployed persons.
Analysing the division of employed persons, based on the level of educational attainment, the RUT firms have more employees with low educational attainment (up to nine years of education) in comparison with the educational attainment of the entire Swedish workforce. On the other hand, there has been a slight reduction in the percentage of employees with low educational attainment among both men and women working in RUT firms. At the same time, there has been an increase in the percentage of employees with at least one year of post-secondary education, especially among women. Employees with higher secondary education account for more than half of the employees, and this group has been relatively constant over time.
¹ The total amount relating to RUT services during a year must represent at least 10 per cent of the wage payments for that same year.