Everything we do is a business cost, that is the response we sometimes receive when we ask about certain costs. Is everything a business cost?
Everything we do is a business costs
Once in a while we do encounter a client that is rather rigid in his or her believes what is a business costs. We see then the hairdresser costs, the nice outfit costs, the children toy costs, all the food costs.
The moment we address that topic, the response is often firm. We simply need to book the costs.
Business costs – what is accepted
Business costs are obvious costs for the business like rent, office equipment, employee costs, advertisements, subscriptions, software etc. The hairdresser and the clothing costs are in some professions important, but the Dutch tax office addresses these costs as keeping up a certain standard in life. Such a standard is not supported by the Dutch tax office, hence none of these costs are tax deductible.
We have indeed experienced the Lego toys of children costs provided in the bookkeeping. Upon information the reply was simple: everything we do is business. Speechless is what we sometimes become.
Food is accepted if you can proof with whom you had the lunch or dinner. For that purpose you need to store your agenda for seven years, but it also helps if you write on the back of the receipt with whom you had that dinner.
The Dutch tax office has the policy that a human being needs to eat, that implies you as entrepreneur cannot deduct your own food as business costs. This also applies to hotel costs. A hotel is excluded from VAT, if VAT is on the receipt, you must have consumed food or beverages. That you need to explain.
Business costs – court case
A managing director shareholder deducted in the administration the window washer of his private home, the dentist, therapeutical shoes, massive amount of food receipts and expensive wine purchases. On average per year EUR 10.000 was deducted.
The Dutch tax office argued that this was salary paid in kind and needs to be grossed up and taxed. The director shareholder disagreed and went to court. In court he argued that these were all reimbursements of costs made for the business. Hence not taxed.
The court ruled that the washing of private home, dentist and therapeutical shoes only could be labelled as private costs. The dinners and expensive wine could be business costs. However, the company only provided an online service to private individuals to appeal fines from the Government. In that setting it was not possible that dinners and expensive wines were shared with business relations.
The director shareholder argued that the food and beverages were consumed with headhunters and payroll companies that provided employees. If we understood correctly, no employees were employed. The court ruled this argument as not sustainable, hence the total amount of costs were regarded indeed as a remuneration in kind.
We would like to get your attention for the time line. This is a normal time line for such a court case, but still we like your attention.
The audit was for the years 2013-2016. Would you know what you ate on a Thursday in 2013 for which you declared the costs? I hardly remember what I ate yesterday. Then you think you are out clever everybody by deducting these costs.
Then in November 2022 the court rules that you still need to pay the tax over the net costs of EUR 10.000 per year over a four year period, being EUR 40.000. That is grossed up, taxed and a penalty of between 25% and 50%. To be paid now. Digest that!
Tax is exciting
We think tax is exciting. Often we are asked to create deductions that are maybe not possible. Grey is that area. We do not like grey, we like orange. When we respond that this is not our field of expertise, we are dismissed as not being relevant.
Our believe is that meeting all the rules and regulations is already a task on its own. That we are excited about! We are even more happy when our clients go through life without sudden audits that brings out the rabbit being a massive tax assessment. Not being grey but being Orange is exciting!