Payments to private individuals
Just when you’ve mastered the art of invoicing to other entrepreneurs, a new situation suddenly arises: having to pay a private individual to whom you’ve outsourced work. Private individuals cannot issue invoices, so how does paying them work? In this blog, we will teach you how private individuals are able to charge you for their services or products.
As an entrepreneur, you might find yourself in a situation that requires having to make a payment to a private person. Because that person doesn’t have a registered business, or is employed by you, you may wonder how the billing process works in this case. First and foremost, it speaks for itself that any services that have been provided must be registered. This happens in the form of a private invoice (kwitantie in Dutch). But let us first explain the distinctions between a private invoice, a volunteering fee, and an expense reimbursement.
Private invoices, volunteering fees and expense reimbursements
In general, volunteers perform tasks for a sole proprietorship, club, union or foundation on a regular basis. Volunteers are allowed to receive a volunteering fee of less than €190 per month up to a maximum of €1,900 per year. It’s important to note that the activities of a volunteer cannot be the same as the ones he or she performs professionally. For example, someone who has a design company and also works as a designer for a foundation in his or her spare time is not a volunteer. The volunteering fee doesn’t need to be filed for income tax purposes.
An expense reimbursement can be used to supplement or replace the volunteering fee. The amount paid must cover the actual and demonstrable costs and it’s therefore less suitable for the remuneration of someone’s working hours.
In exceptional cases, a private invoice can be drawn up by a private individual who has provided a service or product once, and who is neither employed by the client nor a volunteer. The amount stated on the private invoice doesn’t have to be directly related to the costs incurred: a private individual can charge a commercial price for the product or service.
Issuing a private invoice
In a legal sense, a private invoice is an entirely different document than a regular invoice, with different requirements for legal validity. It’s also issued at a different moment than a regular invoice: after payment. It therefore also functions as proof of payment.
A private invoice should at least contain the following elements:
– Name and address of the recipient
– Name and address of the issuer
– Date of delivery of the service or product
– Description of the service or product, including quantity
– Amount due
– Autograph of the issuer
An important difference with a regular invoice is that a private invoice doesn’t contain VAT. If you don’t make extra money on a regular basis, you don’t have to pay VAT as a private individual. The income from the private invoices must be stated under ‘Income from other activities’ when filing an income tax return. If the projects are no longer one-off, but start to show some regularity, you may be regarded as an entrepreneur for income tax or sales tax purposes. So keep a close eye on this by consulting both the Entrepreneurs Check and the online checklist of the Chamber of Commerce.
Processing a private invoice in your administration
As an entrepreneur, you must submit a private invoice to your administration, just like all other expenses. In addition, you may be obliged to indicate to the Dutch Tax and Customs Administration that you’ve made a ‘payment to a third party’. You can do so by completing the form in the data portal of the Tax and Customs Administration or through the submission template Payments to Third Parties (UBD) of the Tax and Customs Administration.
Entrepreneurs who employ people and file wage tax returns for them, are always obliged to declare payments to third parties. If you don’t have a payroll tax number, you’re not obliged to declare payments to third parties, unless you’ve received a notification from the Dutch Tax and Customs Administration. In that case you’ll need additional information from the private individual you’re paying. In addition to the data on the private invoice, you also need the date of birth of that person.