Year-End Tips 2023: Year-End Tips 2023: 13 Tips for the self-employed entrepreneurs
The countdown to 2024 has begun. We have listed the most important current tax tips for the self-employed entrepreneurs. A lot of information, but it can definitely be worth it to delve into it!
1. Keep on overview regarding time spent on your business!
The hours spent on your business, the so called hour criterion, is crucial for accessing many tax benefits for self-employed entrepreneurs, such as the self-employed deduction, starter deduction, deduction for research and development, and collaborative deduction for a partner. You must be able to provide information that you spent at least 1,225 hours on your business during a calendar year. If you are no longer a starting entrepreneur and alongside your business you also perform other activities (within or without an employment contract), you must also spent more than half of the available working time to your business
2. Enforcement of False Self-Employment
On January 1, 2016, the Deregulation Assessment of Employment Relationships Act (Wet DBA) was introduced. Enforcement of the Wet DBA has, in principle, been suspended for the time being, but that is about to change. From January 1, 2025, the Tax authorities will resume enforcement against false self-employment. False self-employment occurs when based on the actual facts and circumstances it seems a self-employed person (freelancer) is, in practice, employed by the contracting party.
Note! The model agreement based on the criterion of free replacement will be revoked as of January 1, 2024. Check whether you are still using such model agreements and, if so, consult your advisor.
Note! Enforcement is already possible in situations involving bad faith or an indication of this bad faith occurs.
3. Small-Scale Investment Allowance (KIA)
Have you invested enough in assets in 2023 to qualify for the small-scale investment allowance (see the table below)? If not, there may still be some tax benefits to be gained! To qualify for this investment scheme, an investment must be at least € 450 excluding VAT. Also, you are able to depreciate the invested amount annually.
Small-Scale Investment Allowance Table 2023
|No more than € 2,600||0%|
|€ 2,601 – € 63,716||28% of the investment amount|
|€ 63,717 – € 117,991||€ 17,841|
|€ 117,992 – € 353,973||€ 17,841 reduced by 7.56% of the portion of the investment amount exceeding € 117,991|
|More than € 353,973||0%|
4. Investing and temporarily random depreciation in 2023
For many new investments in 2023, you are allowed to depreciate-at-will a portion of the cost. This scheme allows you to reduce your profit in 2023 by taking into account a maximum of 50% of the invested amount – minus the residual value. The remaining 50% must be depreciated in the regular depreciation method from the moment the asset will be used. There are exceptions to this random depreciation in 2023, such as investments in buildings.
With this random depreciation, you can lower your profit in 2023, resulting in saving taxes immediately. If you choose to depreciate-at-will in 2023, it will reduce your future depreciation possibilities in the following years and usually, as a result, you may pay more taxes in the years to come.
Note! Random depreciation is not always advantageous, especially if you expect your profit in 2023 to be taxed lower than in the coming years. You can also choose not to depreciate or depreciate less than 50% of the investment amount – minus residual value – in 2023. As a result you can depreciate more in the future and possible reduce your future profit amounts in the following years.
Would you like to take advantage of this random depreciation in 2023? In that case you need to commit yourself to this investment this year, for example, by signing an order confirmation. The possibility of a random depreciation will expire as per 2024.
Will you not put this investment into service in 2024?
If you will not put the investment into use in 2023, consider making a down payment in 2023! Otherwise, you cannot benefit from the possibility of random depreciation.
5. Invest in energy-efficient assets in 2023
The Energy Investment Allowance (EIA) will decrease from 45.5% to 40% in 2024. Are you planning to invest soon in an asset listed on the energy list of the Dutch enterprise agency (RVO)? It could be financially advantageous to start investing in 2023. This means, that you need to have a signed order confirmation or signed engagement letter before the end of this year. However, it is essential to ensure that the energy investment is reported to the RVO on time.
If you want to defer profits, consider whether you can create a provision. It is sufficient for this purpose that future expenditures have their origin in facts and circumstances that occurred before the balance sheet date, and that there is a reasonable degree of certainty that the expenditures will be made in the future. Furthermore, future expenditures must also be attributable to the period preceding the balance sheet date. Possible provisions are for example, restructuring, maintenance, remediation costs, providing guarantees on products, or anniversary expenses for employees.
7. Final Payroll Tax Return 2023
Verify whether all payments made to the personnel have been correctly accounted for. Consider aspects such as the flat-rate additions for company cars and private cars, as well as other favorable forms of compensation.
8. Final wage tax return 2023
Verify whether all payments made to your employees have been correctly accounted for. Also consider aspects such as fictitious additions for a company car and/or vans, as well as other favorable forms of compensation.
9. Last VAT Return of the Fiscal Year 2023
When preparing the final VAT return for the year 2023, please consider the following points:
Adjustments related to private usage:
- Correction of VAT for private use of a car (both for you as an entrepreneur as well as your employees).
- Correction of VAT for private use, for example, gas, water, electricity, and heating.
- Correction of VAT for personal usage of goods belonging to the business for purposes other than businesslike (including private use, such as assets used for both business and personal purposes).
- Correction of VAT for services provided by you as an entrepreneur for purposes other than business (including private usage).
- Correction within the framework of the company canteen scheme.
- Other corrections on the deduction of prepaid taxes on distributions to employees (providing opportunities for sporting or recreation, private transportation, and housing), as well as for business gifts and similar items.
- Entrepreneurs who do not exclusively provide VAT-taxed services must calculate the pro-rata deduction percentage for the past year. This may result in an adjustment (upwards or downwards) of the previously deducted VAT on general costs.
- If the pro-rata deduction percentage falls below 90% (or 70% for, among others, travel agencies), you must assess the implications for possible ‘optional taxed rental’ in rental contracts.
- Revision of prepaid tax on movable and immovable investment goods.
In some cases, under conditions, it has been approved that corrections can be made at the end of the calendar year (if the calendar year is not the same as the fiscal year)
Deadline for reclaiming foreign VAT:
Are you economically active in multiple EU countries? Dutch entrepreneurs who have tax deduction entitlement can reclaim VAT paid in other EU countries through an electronic request with the Tax Authorities. Note that separate login details are required for this, and the application process may take several weeks. The request must be submitted no later than September 30th of the year following the year for which you are reclaiming VAT. Received requests after this date may not be taken into account by the other EU country.
10. Does a debtor not pay your invoices? Request for VAT refund in a timely manner
If a debtor does not pay your invoice, you may, under certain circumstances, request for a refund of the VAT you have already paid to the Tax Authorities.
Please note! If you make arrangements with your debtor regarding the payment of your invoice(s), your claim may be converted into a loan. In that case, you cannot submit a refund request to the Tax Authorities. Before proposing a payment scheme, make sure to carefully assess whether your debtor will ultimately fulfill its obligations or not. Ultimately, one year after the claim became due and payable, it is assumed that the debtor will not pay your invoice, and you must request the VAT refund.
You must submit the refund request in a timely manner. This means within one month after it becomes clear that your customer will not pay your invoice.
11. Retention obligations
Cleaning up and destroying old administrative records can certainly result in cost savings, but keep in mind the legal retention period of at least seven years for your administrative data. Regarding real estate and the rights subject to it, you must keep the VAT administration for ten years.
For VAT, there is a special retention obligation in certain cases (for ten years). Permanent documents (deeds, pension and annuity policies, etc.) should not be discarded.
Tip! If you store the data from sales receipts digitally and are able to make it available for the Tax Authorities, it is no longer necessary to keep paper receipts, cash register rolls, and similar information. This also applies to invoices, provided that no information is lost during scanning.
12. Averaging ruling 2021-2023
If your income fluctuates annually significantly within 3 years, under certain conditions, it is possible to average your taxable incomes in box 1 (income from employment and home ownership) from 2021 to 2023, potentially resulting in a lower amount of taxes due over these years.
The years to be averaged may only be included once in the calculation of the averaging ruling. It should be assessed which of the years gives you the highest possible tax refund entitlements. It is also possible to average previous years, depending on the issued date on the definitive assessment Dutch income taxes for those years.
As of January 1 of this year, this averaging ruling has been abolished. The last period you can apply the averaging ruling is for tax years 2022-2024. This legislative change is in particular disadvantageous for entrepreneurs.
13. Information provision on amounts paid to third parties
Starting from January 1, 2022, employers are required to provide information to the Tax authorities about paid amounts without wage tax withholding to third parties. If you make such payments to a private person, you must inform the Tax authorities about several details, including name, address details, place of residence, date of birth, Citizen Service Number (BSN), and the amounts paid, including expense allowances, in a calendar year. The provision of information obligations does not apply to payments to employees, artists, professional athletes, or volunteers, among others. The provision of information obligations also does not apply to individuals who have issued an invoice, provided that the invoice complies with the requirements of the Dutch VAT law. For 2023 and subsequent years, you can provide the information during the year itself, but no later than January of the following year.
Tip! Start as soon as possible with identifying which individuals you will need to gather and provide information for and check if you have all the required information, such as a BSN number.
Note! The Senate still needs to vote on the 2024 tax plan and the adopted motions. Unfortunately, the voting will only take place just before Christmas. Until then, it is uncertain whether the tax plan and all amendments will come into effect. Given the short time frame between the voting within the Senate and the end of the year, we recommend, despite the uncertainty, to prepare for this in a timely manner. Therefore avoiding last-minute challenges to anticipate and as a result potential undesirable tax consequences.
While utmost reliability and care have been aimed for in the compilation of the Year-End Tips 2023, this version has been put together based on knowledge up to November 9, 2023. We have assumed that the Senate will approve the Tax Plan 2024 and the adopted amendments. Our organization cannot be held liable for any inaccuracies and their consequences.