What are the conditions for the hours criterion?
According to the Dutch Tax Administration, you generally meet the required hours criterion if you satisfy the following 2 conditions:
You spend at least 1,225 hours on your business during the calendar year, regardless of when you started during the year.
You must spend more time on your business than on other work activities (for example, salaried employment). If you were not an entrepreneur in 1 of the previous 5 years, then according to the Tax Administration you do not need to meet this condition.
What are the benefits of meeting the hours criterion?
If you spend 1,225 hours per year on your business and can prove this, you qualify for the tax benefits available to entrepreneurs. One of the main benefits is the self-employed deduction: this is a deduction from the taxable income of entrepreneurs. Because you may deduct this amount from your profit, your tax assessment can be significantly lower.
Did you recently start working for yourself? Then you may also be eligible for the starter’s deduction. This is an increase of the entrepreneur deduction and may be used 3 times within your first 5 years as an entrepreneur.
If you are a customer of The Bookie, we automatically apply all entrepreneur tax benefits for you, so you do not need to worry about this.
Which hours count?
Your hours can be divided into direct and indirect hours.
Direct hours are hours worked that you can generally invoice to clients — in short, billable hours.
Indirect hours are hours needed to run your business.
This includes obvious activities such as:
acquisition / finding new clients
administration
marketing
commuting / travel
It also includes hours spent improving your business, such as reading relevant articles and attending networking events.
Which hours do not count?
Unfortunately, hours during sick leave or holidays do not count.
In addition, simply being available also does not count. So even if you are expecting contact (by email or phone) from potential clients, you are not actively working for your business, and those hours do not count.
Keeping a time registration
It is important to be able to prove all your hours at all times, especially if you are audited by the Tax Administration.
This means you should register your hours in one system (for example, a paper diary, but preferably digitally in Excel, a dedicated time-tracking app, or a digital calendar).
Please note that you must keep your administration — including your time registration — for 7 years and be able to explain it.
So make sure it is not only clear for the tax inspector, but especially for yourself, whether you have reached the required hours and what you spent them on.
Tip!
If you use Google Calendar, you can use a handy tool to automatically total all your hours:
https://google-calendar-hours.com/