1225 hours is a number entrepreneurs or to be entrepreneurs are very much aware of. But is it well understood by the entrepreneurs? We think not.
1225 hours is a full year half day work, or working full time for half a year. What can this bring the entrepreneur? Indeed, the entrepreneurs credit. The zelfstandigenaftrek or entrepreneurs credit amounts to EUR 6.670 (2021) and is deductible in the lowest tax bracket.
In addition to the entrepreneurs deductions, starting entrepreneurs can have a EUR 2.123 (2021) starting entrepreneurs tax credit.
These two tax credits reduce the profit from the company. After these deductions the small business deduction (14%) is calculated. Should you have made a loss, then the entrepreneurs deduction and starting entrepreneurs deduction are not taken into account. In other words, they will not create a larger loss. The Small business discount will then become a Small business upcount. This loss will be made 14% smaller.
What is misunderstood about the 1225 hours?
The 1225 hours is a number claimed by the entrepreneur, and the credit is assumed to be available. However, the tax rules dictated that you need to have spent the majority of your time on the company. Here it goes wrong.
A number of entrepreneurs contact us to claim the 1225 hours deduction. However, they are at the same time full time employed next to this company. Or they earn much more income with the employment, than with self-employment.
If you have a full time of 32 hour or 24 hour employment contract, the tax office is not willing to accept that you have spent next to this employment 1225 hours on your own company. Moreover, if you do make that statement but you earned much less income with being self-employed than the employment, the credit is still being denied.
What is the correct 1225 hours rule?
The correct 1225 hours rule is that you spend at least 1225 hours on your company and the majority of your time you spend on the company. The majority of your income you earned with your company.
How to specify the 1225 hours?
Often a calculation is offered to us with the total of 1225 hours. That is a bit tricky. When the tax office shoots 1 hour, you no longer qualify. Plus making a calculation that arrives exactly on, or just over the number looks fabricated.
The tax office often challenges the number of hours worked. You need to proof the number. The strange thing in this respect is that when you create a list of hours worked after the year has finished. Basically, upon request of the tax office. Such a list is always denied as evidence. You need to keep track of the hours during the year you are working on the company.
Tax is exciting
We think tax is exciting. We are excited about the limited number of tax credits we do have. One of them is the entrepreneurs credit for which you need to meet a condition being the 1225 hours spend on your company. What is overlooked by most entrepreneurs, but also by tax specialists, is that the rule of the hours states that you need to have spent the majority of your time on the company. Next to an employment that often consumes already the majority of the hours, you cannot have spent 1225 hours on the company. And if you do, make sure you have proof ready for examination.