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On the clock: part-time work and being an entrepreneur

In some countries, you don’t need to do much to start working freelance: you might just register for value added tax and get started.

Being a freelancer or self employed is increasingly popular in the Netherlands. In fact,  the proportion of people who are classed as freelance workers has risen from 8% of the working population in 2003 to 13% in 2020, according to national statistics office CBS.

At the same time, there has been a growing discussion about whether some people are genuinely self-employed, and qualify for tax deductions to offset the risks of being their own boss…or whether employers (such as taxi and delivery firms) might encourage freelance work to avoid employee rights, social security and pension payments.

This means that you should research whether any business you set up genuinely qualifies you to declare yourself a self-employed entrepreneur, and apply for the tax-free allowances associated with starting your own firm.

Corona companies

‘During the coronavirus crisis, lots of people opened a business without really thinking about it –  they were reselling imported goods, home-based consultants, remote assistants, you name it,’ said a spokesman for tax advice company Blue Umbrella, which specialises in helping the self-employed. ‘They think if they spend 30 hours a week on their business, they will obtain the tax credits, but it isn’t that simple.

‘If you open a business alongside being an employee, it may well be that the Dutch tax office will not consider you to be an “entrepreneur” because you are not taking the same financial risks.’

There are various tools online that you can use to understand the questions the Dutch tax office asks in order to assess whether you are taking the financial risks needed to gain the tax credits.

For example, if you have another job alongside your venture, you would need to spend at least 1,225 hours a year on your own business, and more than on your other job. A tax advisor specialised in small firms can also help you take a decision.

Tax credits

If you do qualify to be treated as an entrepreneur, often called a ‘ZZP-er’ in Dutch, you will have a small entrepreneur’s tax-free allowance of € 6,310 in 2022. If you have just started your business (and have not claimed to be an entrepreneur in one of the last five years), you will additionally get a starter’s allowance of €2,123 for your first three years of business.

‘For this, you need to spend more time on your business, and more than 1,225 hours a year,’ stresses the Blue Umbrella advisor. ‘This is to compensate you for the risks of being an entrepreneur. If you have another job, it is more likely that your business will be considered a job on the side and taxed as “other activities” rather than income from a business.’

If you are simply doing something on the side, which is unlikely to be counted as a business in terms of tax credits, you may not even need to open a business formally at the Chamber of Commerce. You will probably need a value added tax (btw) number – although if you are earning less than €20,000, you can immediately request an exemption as a small business.

For everyone starting a business (even if you are not counted as primarily self-employed for tax purposes), there is also an MKB tax-free allowance for the first three years, equivalent to 14% of your profits.

‘Fifty percent of the conversations we have with starting clients are related to this topic,’ said the spokesman. ‘People have been forced to be flexible during the pandemic, but also they have rethought what they want to do.’

Pros and cons

If you have income from other activities, there aren’t any related tax credits, although you can deduct all of your expenses from the income you make. But to be granted the credits, the tax office needs to consider you an entrepreneur – and this is where many people are left high and dry.

The Blue Umbrella spokesman also warns that the tax office does not look kindly upon fake businesses – people, for example, registering a personal asset as part of a business, when it is mostly for their own use.

The pandemic has, for some people, been a great opportunity to do something different – but it’s wise to get advice on how this new income will be totted up in your tax return.

For clear advice on self-employment, contact Blue Umbrella at blueumbrella/contact.

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