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Self-employed people often find themselves in this situation. Their income is frequently taxed as business profits. But then a job comes along where the client insists on paying them a salary.<\/p>\n
The tax burden on business profits is considerably lower than that on wages from employment. The SME profit allowance (14%) is deducted from the profits. Furthermore, entrepreneurs who can demonstrate that they have spent 1,225 hours or more on their business in a calendar year (the \u2018hours criterion\u2019) are entitled to the self-employed person\u2019s allowance (\u20ac7,280; for those receiving the state pension: \u20ac3,640). For start-ups, this amount is increased by the start-up allowance (\u20ac2,123). Finally, the costs incurred by the entrepreneur in the course of the business are deductible from the profit.<\/p>\n
Where a self-employed person carries out a job as part of an employment relationship, they are not entitled to the SME profit exemption in respect of that income. Furthermore, the hours spent on that job do not count towards the hours criterion, which means that the self-employed person\u2019s tax allowance may not be claimed. Deductions for acquisition costs are not permitted in the case of wages from employment; these must be provided or reimbursed by the employer.<\/p>\n
The self-employed person\u2019s logical argument is therefore that the work carried out under an employment contract forms part of their business. The wages are then classified as business profits, and the hours worked count towards the hours criterion. This is also referred to as \u2018absorption\u2019.<\/p>\n
Deduction is permitted provided that two conditions are met. The work carried out in the course of employment:<\/p>\n