Entrepreneurs deduction 1225 hours implies that the taxable profit is significantly reduced. What happens if the tax office challenges the 1225 hours made in the company?
Entrepreneurs deduction 1225 hours
Probably you as starting entrepreneur learned about the extra tax credits that could be applicable. Are you also aware of the conditions? One of them is the number of hours spend in the company. This needs to be 1225 hours or more. The other criteria is that the self-employed income is the major income in the tax year.
Example. You made 1286 hours and you earned EUR 30.000 profit. However, in this year you also finished your employment and with the pay out of holiday and overtime the gross salary was EUR 40.000. Then the minimum number of hours criteria was met, but not that the result of the income was the major income in that year.
The 1225 hours – what is included?
In the 1225 hours is included anything you do for your company. That could be setting up administration or consult with a bookkeeper. The time spend to develop the website. The search for clients, even if not successful. Maybe not the sleepless nights whether it will be a success or not. Most corporate actions qualify.
In February 2015 a beauty salon opened its doors and in the 2017 tax return the entrepreneurs deduction was claimed. This deduction was denied by the tax office. The lady had to explain the 1225 hours for that 2017 year.
She made upon request, so after the actual year, an overview. A very specific overview about client treatment, other activities and she even combined a number of activities in one category. Still the tax office denied the list, as it was not clear, it was created after the year ended and it included also study time.
The court ruled that indeed a list created after the year has finished is not admissible. However, the court also noticed that the overview of hours spend was so delicately and clear created, that the court did accept the list. The checks and balances provide with the list made the list acceptable.
The argument that a study cannot be part of hours spend on a company, stated by the tax office, did not stand either. The court had the opinion that an entrepreneur needs to be on top of developments in order to run a proper company. Part of that are the courses taken, hence time spend on the company.
The entrepreneurs deductions were granted by the court.
Tax is exciting
We think tax is exciting. We find it strange a list of hours made on demand by the tax office after the year already ended is not accepted. Fortunately the court showed that a proper created overview with checks and balance can be accepted. Some copy paste the entire year, suddenly they made 8 hours on Christmas day and new years day.
The courses are during every audit a topic. The tax office has the opinion that a course taken out is personal development and should be in the income tax return deduction. A deduction that since 2022 is no longer available. We find that strange, every profession needs courses to keep up to date. Employees expect the employer to pay, by lack of employer the company of the entrepreneur pays. Logic to us, now confirmed by the court.