Private business ownership allowance at 1225 hours? What does this mean?
You probably heard about it, the standard of 1225 hours you want to meet as an entrepreneur in the Netherlands. But what hours exactly? And why?
The 1225 hour criterion means you need to spend at least 1225 hours on your business. Because if you do you’re entitled to a notable tax deduction: private business ownership allowance.
Private business ownership allowance
Meeting the hour criterion as an entrepreneur, means you qualify for the Private business ownership allowance. This is a deduction of your taxable profit. In 2023 the deduction amounts to €3.750. Which means your taxable profit is reduced and because of that, so is your income tax.
Starters’ deduction
Are you starting your business and meeting the hour criterion? In that case your entrepreneurs’ deduction increases with € 2.123 to a deduction post of €5.873. You can make use of the starters’ deduction three times in the first five years of running your business. So if you’re combining your business with a regular employment and you can’t meet the hour criterion, no worries. You can still apply the extra starters deduction in the next year.
1225 hours
So you need to spend at least 1225 hours on your business in order to apply for the private business ownership allowance. These aren’t just the hours of doing your core business, but also all the extra hours of doing your administration, keeping your website and socials up to date, cleaning your office, making sales and so on.
The hour criterion is very clear. You’re entitled to the deduction when you spend at least 1225 hours on your business. If you’ve worked 1224 hours, than you’re not. Also if you start your business half way through the year, you’ll still have to meet the 1225 hours. The hour criterion can’t be applied in proportion (because the private business ownership allowance can’t be either).
Hour administration
You’re not obliged to keep track of your hours according to the tax authorities (Belastingdienst). But it is recommended if you can only just meet the norm. The tax authorities are allowed to ask you to prove the hours you’ve put in when there’s doubt. A detailed hour administration is the best way to account for the time you’ve spent.
If it’s more than obvious that you’ve spent the hours, than you don’t have to keep an hour administration. In that case you’re able to demonstrate your hours by your invoices (if they are invoiced by the hour).
Combining the hour criterion and working in employment
Entrepreneurs still working in employment need to meet a second norm. You need to spend more hours on your business than you do working as an employee. So if you work 1400 hours a year as an employee, that means you have to spend at least 1400 hours on your business as well to apply for the entrepreneurs’ deduction. The 1225 hours will not be sufficient in this example.
When you’re still starting your business this second norm does not apply. In that case you’re entitled to the Private business ownership allowance and starters deduction with 1225 hours.
The hour criterion and being pregnant
When you’re pregnant and temporarily not working in your own business, you can count your average hours as though you’re still working. So you can count your average working hours for the 16 weeks of your maternity leave.
Entrepreneurs’ deduction and the future
The current government had announced the entrepreneurs’ deduction will be reduced to €900 in 2027.
