Starting with the tax return year 2025, the Tax Authority will check even more closely whether costs that are booked within the company are actually business expenses. Especially for sole proprietorships, general partnerships and private companies with one shareholder (dga), it appears that private expenses are regularly processed as business expenses. According to the Tax Authorities, this increasingly leads to corrections and additional assessments. This has been a spearhead of the Tax and Customs Administration for several years, but now the Tax and Customs Administration has turned it into a nationwide audit campaign.
Why is this important to you?
Expenses are only deductible if they are in the interest of the business. If the Inland Revenue finds that an expense is actually private, there could be tax adverse consequences, such as:
- Not being able to deduct expenses from profits;
- not being able to deduct VAT;
- a taxed wage or dividend adjustment towards the dga;
- tax interest or penalties.
Obviously, the consequences depend on the specific case. Moreover, they can work out differently for each tax. We can help you identify them.
Which expenses most often result in discussion?
In practice, we see discussions arise about the following expense items, among others:
- sports subscriptions (e.g. golf);
- travel and accommodation expenses;
- health checks, such as body scans;
- home office expenses;
- dinners and entertainment;
- events and business seats;
- advisory and tax return expenses with a private element.
For expenses that can be both business and personal, it is important to properly document why they are business expenses. In the absence of such substantiation, expenses must usually be classified and processed as private.
There are also expenses that are already denied full or partial deductions in advance, regardless of their possible business nature. These include:
- non-deductible:
- fines;
- representative vessels;
- combat dogs;
- weapons;
- partially deductible if businesslike (at your choice per year: threshold of
€5,700, above that 100% deduction or deduction at 80% (income tax) or 73.5% (corporate tax)):- food;
- entertainment expenses;
- congresses, study trips and the like;
Then - as with other expenses - it must always be assessed whether there is sufficient business character. If not, these costs are still not deductible despite the legal deduction option.
The VAT deduction, by the way, has its own rules that differ in some cases. VAT on food or business gifts, by the way, is (usually) not deductible.
What can you do to avoid problems?
We recommend taking a critical look at expenses that you book within your company or PLC, especially if they may not appear to be directly businesslike due to the presence of a private element, a mixed character or where the personal character even predominates. For example:
- timely review of invoices;
- Recording business occasion (e.g. who was dined with, which business partners attended the event or what was the purpose of a trip?);
- Identifying and discussing expenses that may be private early (internally and with your advisor);
- timely and correct processing of expenses with a private element. This means:
- where possible, book these expenses directly through the current account and not deduct the VAT.
- if this is no longer possible, the expenses - depending on the situation - should be processed as taxed wages or as (hidden) dividends and a possible VAT supplement should be submitted.
By doing this while booking the accounts or submitting the documents for the annual figures, discussions with the tax authorities can be avoided afterwards. Naturally, we can advise you on this and act as a sparring partner.
Finally
The extra attention from the Tax Administration makes it important to deal carefully with questionable expenses. Do you have questions about certain expenses or have doubts about the correct processing? If so, contact us in good time via your relationship manager or via our general telephone number (040 2 504 504). We will be happy to think along with you.