The following points are discussed in the Year-End Tips:
• Tips for the Limited Company (BV) / Income Tax entrepreneur
• Tips for the income tax (IB) entrepreneur
• Tips for the limited company
• Tips for the Director-Major Shareholder (DGA)
• Tips for employer/employee
• VAT tips
• Tips for all taxpayers
Tips for the Limited Company (BV) / Income Tax entrepreneur
1. Nothing to worry about corona allowances
Have you received a one-off payment based on the Allowance for Entrepreneurs in Affected Sectors policy (TOGS)? Or a Fixed Costs Allowance (TVL)? Then you do not need to take into account any taxes on these allowances, as they are tax-free.
2. Request deferral of payment
Are you an entrepreneur and does your company has problems with payments due to the corona crisis? Request deferral of payment at the Tax authority. Requesting a deferral of payment is easier within the more flexible system. After you have received an (additional) assessment, through an online form, you request a one-off deferral of payment of assessments of income tax, health insurance, corporation income taxes, payroll taxes, and VAT. For the other taxes, you indicate for each tax separately that you wish a deferral of payment.
Have you made use of the previously eased corona arrangement for deferral of payment? Then you may extend a previous request for extraordinary deferral of payment no later than 31 March 2021. The arrangement for extraordinary deferral of payment expires no later than 31 March 2021.
3. Take your repayment into account. The deferral is not permanent
Check which taxes you still have to pay. If any, you can reserve money to be able to pay your taxes. Or you can request a deferral of taxes. Did you obtain a deferral of payment of taxes? Then you will start with the repayment of the accrued tax debt on 1 July 2021. This repayment will take place in 36 monthly instalments. Try to analyse whether you will have enough financial scope for the repayments later.
If you do not pay an assessment in time, you normally would have to pay a default interest of 4% from the moment the deadline expired. Because of the precarious financial times, the rate of the recovery interest was reduced to 0.01% until 31 December 2021. This also means that, until then, you virtually have no interest charges on the tax debt that you will repay.
4. Reduce your provisional assessment
Do you expect a lower profit due to corona? Then it is possible to reduce the provisional assessment income tax or corporate income tax. By doing that, you will pay less tax every month, which gives you more financial room.
5. Make use of the tax reserves
As an entrepreneur, you can reduce your profit in the income tax or corporate income tax by building up tax reserves, like the reinvestment reserve and the equalisation reserve. Verify if you meet the condition for the constitution of the tax reserves.
Please take into account that a previously built-up fiscal corona reserve will be mandatory and fully released in 2020.
You may constitute an equalsation reserve for operational costs and expenses in 2020 that will only result in a peak in the expenses in the future. Think of maintenance costs for your property.
You may include the book profit you have achieved through the sale of your asset in the reinvestment reserve. The condition is that you have an intention to reinvest in an asset at the balance sheet date.
6. Apply the investment deduction for small scale
Did you purchase new assets or do you intend to do this? Under conditions, you may qualify for an additional deduction, the small-scale investment deduction. To qualify for the investment deduction for small scale, in 2020 you must invest an amount in assets for your company between € 2,401 and € 323,544.
The tax advantage is greatest in the case of investments from € 2,401 to € 58,238. In that case, the deduction is 28% of the amount of the investment. Above, the advantage is getting smaller and smaller. It is perhaps a tip to postpone any investments when you achieve € 58,238.
Verify if you still have old investments for which you have not claimed the investment deduction for small scale. For these old investments, within 5 years you can still request the Tax Authority to apply the small-scale investment deduction.
Did you make big investments in 2020 and will you probably exceed the maximum amount of € 323,544? Then evaluate if you can postpone your investments until 2021. By doing this, you avoid that your entitlement to investment deduction expires.
7. Obtain tax advantages from your environmentally friendly or energy-efficient investment
When you make environmentally friendly or energy-efficient investments, you might be able to apply for fiscal investment facilities, such as the energy investment allowance (EIA), environmental investment allowance (MIA), or random depreciation on environmental assets (Vamil). These facilities ensure a reduction of your profit.
With the EIA you can deduct 45% of the investment costs from the taxable profit. With the MIA, you benefit from an investment deduction of up to 36% of the amount of the investment. With the Vamil, you may deduct 75% of the investment costs. Check whether you meet the conditions and qualify for the EIA, MIA, or Vamil.
If you wish to claim the EIA, MIA or Vamil, you have to report your investment within 3 months after you have entered into the investment commitment at RVO.nl. The conclusion of a commitment is, for example, the signing of a purchase agreement. If you are late, you will no longer be eligible for the deduction!
Besides the EIA or the MIA/VAMIL, you can also make use of the small-scale investment deduction.
8. Look out for the divestment addition
Do you intend to sell an asset? Then find out when this asset was acquired. Since it might be that you have to pay back a part of the deduction if you have applied the investment deduction less than five years ago (disinvestment addition).
Review if the five-year time limit already expired in 2020. If not, try to postpone a sale of the asset.
9. Request R&D Stimulation Act deduction (WBSO)
Is your company active in research and development work? You may request a WBSO deduction for the development of a product, a production process, software, and for the performance of technical-scientific research for:
- R&D work of yourself and/or your employees;
- costs and expenses you incur for the performance of your own R&D project.
If you do not have any staff and you annually dedicate 500 hours to your development or research (e.g., a sole proprietor), you will receive a fixed deduction. If you do have staff and you pay payroll taxes for your employees who perform your development or research, a part of the (wage) costs and expenses of your R&D project will be compensated. Then your company will pay less payroll tax.
You can only request a WBSO deduction for future work. A WBSO request should therefore always be submitted beforehand.
Tips for the income tax (IB) entrepreneur
10. Keep track of your hours
If you want to benefit from several attractive business facilities, such as the self-employed deduction, the starter deduction for new entrepreneurs, and the partner deduction, you will have to comply with the hour criterion. In other words, each year you must at least work 1,225 hours in your company. If you start your company during the year, you still have to spend at least 1,225 hours to your company to qualify for the tax benefits. Verify whether you have spent enough hours in your company.
Do you not comply with the hour criterion due to the coronavirus, between the beginning of March and the end of September 2020? Then you may temporarily assume that you complied with the hour criterion (at least 24 hours per week), even if it is in fact not the case. This way, you can still make use of the entrepreneur facilities.
Are you an entrepreneur in season-dependent industries, like the catering and the festival sector? Then you may consider the number of hours worked in the peak periods of other years.
The hour criterion with a (partial) incapacity for work of 16 hours per week, or 800 hours per year, has also been eased. The Tax Authority assumes that entrepreneurs in this category spent 16 hours per week in their company.
11. Offset your losses
Will your company have a loss in 2020? Investigate how you can offset this loss. A loss in box 1, you can offset against positive box 1, income from the 3 preceding years, and positive box 1 income from the 9 following years. The loss compensation has a compulsory order: first the 3 preceding years and then the 9 following years.
Losses that you cannot offset in those periods evaporate. You cannot offset those losses anymore. Since it is also not possible to compensate losses in box 1 with positive results from substantial interest (box 2) or savings and investments (box 3).
12. Reduce your profit with the self-employed deduction
Do you comply with the hour criterion as an entrepreneur? Then you can apply for the self-employed deduction. The amount of the self-employed deduction amounts to € 7,030 in 2020. If your profit in 2020 is too low to fully use the self-employed deduction, the amount of the deduction that you have not used will be offset against the profits in the next 9 years. However, the profit in those years must be higher than the self-employed deduction in those years.
In 2020, the tax benefit of the self-employed deduction is limited. The maximum rate for deduction is 46%.
13. Remunerate your collaborating partner
Does your partner collaborate in the company? Check the tax facilities for the remuneration of your partner.
- You pay your partner less than € 5,000. You may be eligible for the partner deduction if you meet the hour criterion. But then you cannot deduct the amount actually paid to your partner. Your partner does not pay income tax on this remuneration of labour. However, your partner must be active in your company for 525 hours or more.
- You pay your partner € 5,000 or more. You can deduct this allowance from your profit. Now your partner will pay income tax and national insurance contributions on this remuneration of labour.
Do you achieve a lot of profit? Then it may be advantageous to run the company together (man-woman partnership). Then the profit is divided between you and your partner, by which you both can take full advantage of the low rate tax brackets and the tax deductions. How you distribute the profit should be substantiated.
14. Build-up a retirement reserve
You can reduce your profit by adding a part of your profit from the company to your retirement reserve. However, this is under the condition that you meet the hour criterion.
The addition to your retirement reserve in a calendar year is 9.44% of the profit, in 2020 with a maximum of € 9,218 in 2020. Like this, you ensure a postponement of taxation on that part of the profit. This gives you a short-term tax advantage.
Eventually, you will have to pay tax in the future. Take this into account.
Tips for the limited company
15. Make use of the fiscal corona reserve
Under conditions, you will have the opportunity to acceleratingly offset corona losses in 2020 against profits obtained in 2019 by the constitution of the fiscal corona reserve. The amount that you add to the corona reserve may not be higher than your profit over 2019. Check if you meet the conditions.
Your advantage is that you do not need to wait until you can file the corporate tax return over 2020 and the tax assessment for 2019 has been imposed definitively. The liquidity advantage of the loss compensation can thus be realised more quickly by the emergency measure.
It must concern a corona-related loss.
16. Buy a business property
Buy a business property still in 2020, since the real estate transfer tax still continues to be 6%. It is expected that the rate will go to 7% from 1 January 2021.
The transfer tax is not deductible as costs for the company. You must add the transfer tax to the book value of the property and you must depreciate it. If the purchase of a property is VAT-taxable, a transfer tax exemption might exist. Check if you qualify for it.
17. Reduce your profit
To take advantage of the low corporation tax rate of 16.5%, you should attempt to reduce your profit over 2020. One of the ways to reduce the profit is to bring forward costs incurred, like, for example, carry out a costly repair in December rather than waiting until January.
18. Make use of the innovation box
Are you active in innovative research? Then you may allocate all profits that you obtain with innovative activities in the innovation box. The rate of corporate income tax for these profits is 7%.
Try to still increase your benefit from innovative activities this year, to take advantage of the rate of 7%. In 2021, the rate will be increased to 9%.
Do you make losses on your innovative activities? Then these losses are deductible and can be offset against the normal corporate income tax rate. These losses are therefore not taxable at the lower rate of the innovation box.
19. Whether or not a tax entity?
The conclusion of a tax entity between multiple companies for the corporate income tax has certain advantages, like filing just one return for the corporate income tax, the neutralisation of inter-company trade transactions, the fiscally silent conduct of a restructuring, and the direct compensation of mutual gains and losses of combined companies. Check if you meet the conditions for the constitution of a tax entity.
Is a tax entity fiscally attractive for you? Then you can make use of the fiscal unity with effect from 2021, if you submit your application for the tax entity before 1 April 2021.
Profits of the companies in the tax entity are merged. So keep in mind that if you obtain a profit of more than € 200,000 within the tax entity, you can only use the starting rate of 15% once. The joint profits above € 200,000 will be taxed at 25%.
Tips for the Director-Major Shareholder (DGA)
20. Reduce your usual wage
The usual wage must at least be the highest of the following amounts:
- 75% of the wages from the most comparable employment;
- the wages of the highest earning employee in the company or an associated company of the employer;
- at least € 46,000.
Are you facing a decrease in sales as a result of the corona crisis? Then you may determine the usual wage in 2020 at a lower level. But you must then comply with the following requirements:
- The current account debt or dividends may not increase as a result of the lower usual wage.
- If the holder of the substantial interest, in reality, has had a higher wage than results from the calculation below, that higher wage applies.
- If your turnover in 2019 or 2020 is affected by extraordinary events, such as an establishment, a strike, a merger, a division, or extraordinary results, you apply the calculation below without that influence.
The Tax Authority imposes the following calculation to establish the usual wage at a lower level:
Usual wage 2020 = A x B/C
A = the usual wages for 2019
B = the turnover (excluding VAT) in the first 4 calendar months of 2020
C = the turnover (excluding VAT) in the first 4 calendar months of 2019
You may demonstrate that the usual wage has to be lower than the wage according to this calculation.
21. Pay a dividend
Are you planning to pay a dividend? Do it in 2020 and make use of the rate of 26.25%. From 2021, a further increase to 26.9% applies.
The payment of a dividend in 2020 may have consequences for your emergency allowance for employment (NOW). One of the conditions of the NOW is that over 2020, no dividend or bonus may be paid to the Board of Directors, Executive Board, and Management, and no own shares may be repurchased.
22. Pay attention when borrowing from your limited company (BV)
Already take into account the proposed legislation, in which you in the future may be confronted with taxation in box 2 on debts to your BV that exceed € 500,000. Therefore, it is recommended to take a critical look at the debts to your BV and do not let them increase unnecessarily and, if possible, see if they can be repaid. Also, check if it is necessary to conclude new loans with your BV.
23. Offset your loss from a substantial interest
Is your income from substantial interest negative? Then you can offset this loss with positive income from a substantial interest of the previous year and, if applicable, with positive income from a substantial interest in the next 6 years.
Is it impossible to offset your loss from substantial interest because you do not have a substantial interest anymore? In that case, you can ask the Tax Authority to convert your loss from substantial interest into a tax credit.
Tips for employer/employee
24. Make use of the temporary elevated free space
Through the work cost arrangement, as an employer, you can give tax-free allowances to your employees. For the provision of tax-free allowances, you should take into account the free space. If the total amount remains below the 1.7% of the first € 400,000 of the total payroll of all employees? Then you may give that as a tax-free allowance. The free space on the taxable wages up to € 400,000 is temporarily increased from 1.7% to 3% in 2020. That offers you if you have the financial space for it, the option to compensate your employees extra in this difficult time. Have a look at how you can make use of it.
25. Let fixed allowances continue
Do your employees receive a fixed allowance from you, such as a travel allowance or a lunch allowance, and are they (almost) completely working from home? Then you don’t have to adjust the fixed allowance. Until 31 December 2020, you may assume the facts on which the fixed allowance was based. Provided that the right to the fixed allowance existed no later than 12 March 2020. Does a right to a fixed (travel expenses) allowance depend on the choice of your employee (for example in a cafeteria system)? Then they must have made their choice no later than on 12 March 2020.
26. Reimburse face masks tax-free
You may provide or reimburse the cost of face masks tax-free to your employees. This falls under the specific exemption of the work-related costs scheme. These costs fall under the actual costs of public transport, because workers may not travel by public transport without a face mask.
27. Request the wage cost benefit
Do you hire old workers or workers with an occupational restriction? Check if you are eligible for the wage cost benefit. If you meet the conditions, you will receive an annual compensation.
From 1 January 2021, you can obtain a wage cost benefit for a worker belonging to the target group of the employment agreement as long as he is employed by you. Currently, the maximum duration is still three years.
28. Complete your payroll administration
At the end of this year, you must close the payroll administration. You can pay attention to the following:
- Are all allowances and benefits in kind to employees properly recorded?
- Do you have a copy of the certificate of identity in your records for each employee?
Perhaps it is impossible to meet all administrative obligations for the payroll tax, due to the imposition of working at home and observation of the 1.5-metre distance. In that case, the Tax Authority temporarily attaches no consequences to it. But you must still meet these administrative obligations as soon as this becomes possible. This measure applies in any case until 31 December 2020.
What are the administrative obligations that you can imagine? To do this, the Tax Authorities use the following example: You might not be able to determine the identity of your employee based on an original proof of identity. Normally you should apply the anonymous rate of 52% for this employee. In this period, you do not need to do it if you determine the identity of the workers correctly as soon as the situation allows it again.
29. Note tax addition company car
If your employee drives more than 500 private kilometres with the company car, a tax addition applies. The general rate is 22%, but for new, fully electric, cars a reduced rate of 8% applies in 2020. But a cap exists. The reduced addition only applies to a list price not higher than € 45,000, 22% still applies above that amount.
Does your employee not drive the car that was made available to them more than 500 private kilometres on a calendar year basis? Then you do not need to add an extra amount to their taxable wage. Your employee can prove that they, on a calendar year basis, do not drive more than 500 private kilometres using a correct kilometre registration.
30. Submit the payroll tax return in time
Are you in need of money? Then it is still recommended to submit your payroll tax return in time. Especially now, during the corona crisis. Because the UWV needs the data from the payroll tax returns for the Temporary Emergency Measure Bridging Employment (NOW arrangement). This emergency measure is intended to compensate employers with a revenue loss for the wage costs. It also allows you to be compensated faster.
You will then at least have filed the payroll tax return. Regarding the payment of the payroll taxes, you may request an extraordinary deferral of payment.
Do you receive a benefit from the UWV in the context of the Temporary Emergency Measure Bridging Employment (NOW)? Take into account that this benefit is taxable.
31. Apply the correct VAT rate
Check if you charge the correct VAT rate to your customers. The general VAT rate is 21%. To some goods and services, the low rate of 9%, the 0% rate, or an exemption is applicable. Check which rate you should apply.
VAT on business expenses can be deducted as input tax. But the VAT on the cost of exempted goods and services is not deductible.
32. Note last VAT return of the year
In the last declaration of the year, you include several settlements regarding the last calendar year. Then you will, among other things, pay back a part of the VAT that you deducted before for the private use of goods and services that belong to your company. Think, for example, of the company car. You will pay back the VAT regarding the private use in the last VAT return of the year. Try to analyse this.
33. Request a refund of VAT
If you are confronted with a buyer that did not pay your invoice fully, and will not pay it in the future? Then request a refund of the VAT that you have declared and paid on this uncollectable debt.
You will also be entitled to a refund of VAT if you grant a price reduction or complete remission afterwards, or if the agreement for the supply of the performance is cancelled.
You process the amount of the refund regarding an uncollectable claim, price reduction, full remission, or cancellation of the agreement, in the return for the period in which the situation has occurred.
34. Note change in activities
Have you changed your activities or do you intend to carry out other activities? Please take into account the VAT consequences of the changes in your activities. Since it may be that you do not have to file a VAT return now, for example, because your company activities are exempted. If these activities are going to change, or you will add new activities, you might have to do the VAT return.
35. Report termination of tax entity for the VAT as soon as possible
If you no longer fulfil the conditions for the existence of a tax entity for the VAT, the joint and several liability for the VAT debts of all companies within the tax entity continues as long as the tax entity exists.
The tax entity is not dissolved retroactively, so it is very important that you report to the Tax Authority that the tax entity should be dissolved in writing as soon as possible.
Even if a part of the tax entity is dissolved, you must report this to the Tax Authority.
Tips for all taxpayers
36. Still enroll yourself for training or study
Do you plan to attend a training or study for your (future) profession and it is a learning path, you can still deduct the cost of this for your income tax in 2020. This option is likely to disappear in 2021, so it makes sense to incur study costs in 2020.
37. Reduce your box 3 capital
Do you have a big capital in box 3, where the flat-rate tax burden is very high? Then you can reduce the tax burden by still making a donation or an expensive purchase that you already intended to do this year.
38. Wait with the purchase of a house
Are you planning to buy a home and are you between 18 and 35 years old? Then it is recommended to wait until 2021 since buyers between 18 and 35 years old once do not have to pay real estate transfer tax when buying a house. That makes the purchase of a house a lot cheaper for them.
39. Deduct health care costs
You can deduct the personal expenses for specific health care costs as far as they do not exceed a certain threshold. The threshold depends on the aggregate income for the application of the deduction of personal expenses. Specific health care costs include expenses for medical and surgical assistance, prescribed medication, aids (except glasses and contact lenses), extra family help, and extra costs of a diet followed on medical prescription.
Expenditures for motorised scooters, wheelchairs, or modifications to the home are not eligible.
40. Next year, you may save more tax-free
Next year you can put more money aside. From 2021 the exempted capital in box 3 increases to € 50,000 or € 100,000 with a tax partner.
41. Pay mortgage interest up-front
Since the rate for the deduction of mortgage interest drops every year, it is recommended you pay mortgage interest up-front. In this way, this year you will still benefit from a higher rate for deduction of 46%. In 2021, the mortgage interest deduction will progressively be reduced by 3% and becomes 43%.
42. Note tax consequences of mortgage payment break
Are you temporarily not able to pay your mortgage, due to the corona crisis? Then your lender – for example your bank, may grant you a payment break. In that period, you pay no (or less) interest and redemptions for the debt regarding your own home. You can request a payment break, and your lender can agree to such a payment break, until 31 December 2020.
The interest that you do not pay in 2020, you usually may not deduct in your income tax return for 2020. If you are not allowed to deduct interest paid in your income tax return for 2020, you may deduct that interest in the return for the year in which you will pay that interest. That will usually be in the return for the year 2021.
Do you receive a provisional refund for the deduction of interest and costs for your own home? Then the payment break usually affects the amount of your provisional assessment for 2020. Is your unpaid interest not deductible in 2020? Then you should adjust your provisional return to avoid having to repay for 2020. Since the provisional refund does not take into account the temporary suspension of the payment of the interest.
If you cannot deduct interest, your taxable income will be higher. Do you receive a supplementary allowance for 2020? In that case, this higher income might affect the amount of your supplementary allowance. Therefore, the supplementary allowance decreases. Adjust your supplementary allowance for 2020 to prevent you have to repay over 2020 in 2021.