I’m self-employed for VAT purposes, and therefore also for income tax (IB). That’s what a shopkeeper says in a case in which the Arnhem-Leeuwarden Court of Appeal recently ruled.
Objective profit forecast
That statement sounds logical. However, there is one key difference between the concept of a trader for VAT purposes and for income tax purposes: a trader for income tax purposes must aim to make a profit (gain), and that profit (gain) must also be objectively foreseeable.
Antiques
The case concerns the owner of an antiques shop, who has been registered with the Chamber of Commerce since 1 March 1984. The Tax and Customs Administration is contesting the tax returns submitted for the years 2016 and 2017.
Since 2002, the operator has reported a loss every year. On that basis, the Court concludes that there is no objective expectation that the activity will generate a profit (a benefit). Nor has the party concerned demonstrated that the business will generate a profit in the future.
Set off
The consequence of the Court’s decision is that the antique dealer can no longer offset the losses from the shop against his other income from employment and property (Box 1). In 2016 and 2017, he received a pension. In other years, he may have received wages from employment.
Furthermore, he is not currently entitled to the business tax relief schemes: the investment allowance, the self-employed person’s allowance, the assisting spouse’s allowance and the retirement reserve. The SME exemption is negative in the event of losses and therefore results in an additional tax liability.
Of course, the income from the shop is taxed as income from savings and investments (Box 3). However, in that box, the income is determined on a flat-rate basis based on the balance between the value of the assets and the liabilities. This cannot result in a loss.