Save as you earn is a variation of pay as you earn. The bottom line is the same, it has to do with paying your taxes.
Save as you earn – company profit
The moment you set up a company, either self-employed or via a limited liability company, you need to be aware of the tax obligations. The Value Added Tax is a reoccurring quarterly tax obligation. The wage tax is a monthly tax obligation. The corporate or profit tax obligation is annually, but can be stretched.
The Value Added Tax is done quarterly and if you did not file within that month after the quarter, the Dutch tax office is keen to send you a penalty plus an ex officio amount to be paid.
The wage tax is to be paid also the month following the salary month, and again the tax office is keen to instantly issue a penalty plus ex officio amount.
For the profit of a company this spot on action does not exist. That is the problem of this article.
Save as you earn – keep track of your obligations
The profit a company makes is often determined at the end of the year. That said, as entrepreneur you have a feeling about the result already. If profit is good, the business bank account is good. That is an indication. Some use excel overviews to keep track of the turnover and costs. A good start, but it is only two dimensional. The outstanding debts and receivables are never part of such an excel overview.
We recommend for a proper company a proper administration, like exact online.
Delay in profit tax filing
A popular request we receive often is to delay the profit tax return as much as we can, as there is simply no money to pay for the tax. An entrepreneur is in general an optimist and the optimist is under the impression this new year enough income is made to pay the profit tax of last year.
This set up can work, but the Covid19 pandemic has shown that suddenly your client base can be erased and then you have no chance to pay last years tax.
An entrepreneur can also get too optimistic. The profit tax return you can delay about 12 months. We do see happen that for instance the 2021 profit tax cannot be paid, hence delay in filing is asked. Then the 2022 tax return shows more or less the same amount of tax to be paid. The problem has then doubled.
The tax office is often proactive when they learn an amount of tax is to be paid over 2021, and over 2022, then the preliminary tax assessment for 2023 is imposed based on the previous years. The problem has then tripled.
Set up a business savings account
There are two solutions. One is to save in a business savings account already the equivalent of about 30% of the turnover you make, excluding VAT. That is what we call a good start. That implies you monitor the turnover, and keep the savings account in balance.
Another solution is what the Dutch tax office prefer you do:
Preliminary assessment – pay as you go
The Dutch tax office insist on companies to start paying the profit tax already during the applicable year. That implies for 2023 tax year, you are now already asked to pay the tax over the expected profit.
The Dutch tax office often issues based on previous year’s tax returns already a preliminary assessment to you. What you can do is pay that assessment in installments. You can adjust that assessment to a better predicted profit.
What you cannot do is reduce the full amount to zero. Then at the end of the year it turns out you did make a profit, hence you are to pay tax. This shows that you could not have reduced the preliminary assessment amount to zero. For this behavior the penalties have been introduced a couple of years ago, which implies this cannot be done penalty free.
We recommend that when the preliminary assessment is obviously not high enough, to either update the assessment. Or if you are uncertain you will actually reach the predicted profit, to save money in the business bank account next to making the payments of the preliminary assessment.
Tax is exciting
We think tax is exciting. Not being able to pay the tax as you already spend too much of the business money is not exciting at all. If you spend money in the business, hence these are business costs, that is not the problem. The problem is having spent the business money outside the business.
The Dutch tax office does offer paying in installments, but only for a limited amount or period. If payments cannot be made or the payment schedule is not honored, then the Dutch tax office will ask you to sell some of your assets to pay for the tax. The house you own is an asset for your information.