Self employed company charged hourly rate by owner. There is a reason why we think tax is exciting. We simply cannot make up the cases that appear in court.
The self employed company
A self-employee company is the ZZP company or freelance company. The company is registered with the Dutch Chamber of Commerce. Despite such a registration, the self-employed or ZZP company is not a legal entity. The organization is transparent.
Transparent implies the company is the owner, the owner is the company. The owner can buy a company car, but not in the name of the company. The company is no legal entity, the car is in the name of the owner. Same applies to other transactions as a building for instance.
Actually, the owner being the company solves a formality: correct name on the invoice. A company can only deduct the VAT for costs if the invoice was made correctly. For a BV company it is important the name on the invoice is that of the BV company. Any other name, for instance the name of the shareholder, makes the VAT not reclaimable.
In case of the ZZP transparent company both the company name registered with the Chambers of Commerce on the invoice or the name of the owner only on the invoice, makes the Value Added Tax reclaimable. An advantage of the self-employed company.
The self employed company charged hourly rate by owner – court case
A self employed company is registered with the Chamber of Commerce with the activities of creating art in any form or shape. The owner of the company claimed a EUR 7.513 loss in 2018 and a EUR 1.093 loss in 2019.
In the event such a company makes losses in connected years, the Dutch tax office could start an audit to see if it is indeed a company or a hobby. A hobby is not supported by the Dutch Government via a loss deduction.
This tax inspector might have thought he seen it all, surprised as he was during this audit. The owner of the company claimed as costs of sales the hours he spend in the company at EUR 65 per hour excluding VAT.
We arrived at a moment we also find it difficult to understand. So you have your one man company, and then you are charging your own one man company with an hourly fee excluding VAT. I then wonder where this fee ends up, as you can only have one one man company at a time. And which what are you compensating the VAT?
The court could rule this setup quickly as not possible, the own hourly rate charged costs were deleted from the profit and loss result.
Let us assume it would be possible
Let us assume it would be possible to claim an hourly fee against your own company. Then this income cannot be profit, as that is the income of the own company. The hourly rate is then another source of labour income. With the company you have an entrepreneurs deduction, starting entrepreneurs deduction and a small business deduction.
That said, if your company makes a loss none of these credits can be applied. So all credits have been lost. An hourly rate was charged, so that will show in the income tax return as other source of income. No credits for other source of income. Hence not only is charging yourself silly, it is also tax wise not the thing you should be doing.
Tax is exciting
We think tax is exciting, sometimes too exciting for our brain. The case described above exceeds any logic. I could maybe understand where the owner is coming from, he works hard for the company and has the opinion he should earn an income. That is the profit. The profit is the reward of the owner of the company.