Business income

What it means

Business income is an individual’s income from working for themselves: from a trade licence, from farming, from the regulated practice of an advocate, auditor or notary, and alongside these the income of other self-employed work such as experts, interpreters and authors.

What separates it from employment income is not the invoice but the way the work is done: someone who works personally, to the client’s instructions, in the client’s name and in a position of subordination is in dependent activity whatever the contract is called. A shareholder’s profit share does not belong here either.

Under tax records or single-entry bookkeeping, income means what actually reached the sole trader’s account or cash box, not an issued invoice. An unpaid December invoice therefore counts as income only in the year it is paid - the reverse of double-entry bookkeeping, where the date of supply decides.

How it works in practice

The trader chooses between documented expenses from tax records or single-entry bookkeeping and flat-rate expenses, a percentage of income capped annually by the Act. Unlike rental, business can report a tax loss, which the Act allows to be carried forward into later years.

Levies follow this income: the Social Insurance Agency reviews once a year whether compulsory self-employed insurance arises, using the previous year’s income, and the cover starts on the first of July, or the first of October where the return was deferred. The health insurer meanwhile collects advances and squares them by the annual reconciliation.

When a sole trader also has a job, business income and salary are added together in a single type B return and the non-taxable allowance applies only once. We therefore estimate the tax in advance so the balance due does not catch the client off guard, and where the tax is higher, also the tax advances they will pay the following year.

What to watch out for

Switching the way expenses are claimed, from documented to flat-rate or back, calls for a one-off adjustment of the tax base for unused stock, receivables and payables. Whoever forgets that adjustment hears about it at an audit and pays the assessed tax together with late-payment interest.

Another mistake is paying private purchases from the business account and listing them as expenses. In an inspection the tax office tests each expense for a link to the business; family shopping or a holiday is not a deductible expense, so it is struck out and the tax assessed with a penalty, and higher contributions follow.