How does a donation circle work? 

If you own your own business, you are responsible for your income. But what happens to that income if you get sick or have an accident and can no longer work? Many entrepreneurs choose to take out disability insurance (AOV) to cover that risk. But there are other options, such as joining a donation circle.

What is a donation circle?

A schenkkring (donation circle) is a group of entrepreneurs who know and trust each other. They form an association to support each other financially in case of illness. The board of the schenkkring organises regular mandatory meetings to strengthen the bonds between them. Donation circles consist of members from different industries.

Are you a member of a donation circle? Then you will receive financial support for up to 2 years when you are ill.

Schenkkring or Broodfonds?

A donation circle is also popularly known as a Broodfonds (‘bread fund’ in Dutch. But this is not always correct. Broodfonds is a brand name. It should only be used if the donation circle is established according to the terms and conditions of the BroodfondsMakers cooperative (in Dutch).

How a donation circle works

Becoming a member

Usually, you cannot just join a schenkkring yourself. Another member must invite you to join. Every member has the right to veto the membership of a new member. When there are at least 20 members, a donation circle can launch and begin collecting contributions. There is a limit of 50 members per circle.

The amount each member contributes is calculated based on the average absenteeism rate for freelancers. This absenteeism rate was established by the Netherlands Organisation for Applied Scientific Research, TNO. 

Cost

If you participate in a donation circle, you pay a registration fee, a monthly membership contribution, and you deposit an amount in your own donation circle account. The board manages your account. Do you want a benefit of, say, €1,500 per month in case of illness? Then you put in an average of €60 per month in addition to the membership contribution.

If you become ill

If you are unable to work due to illness, you report this to the board of your donation circle. After a month's waiting period, you will receive a small amount from each member of the circle in your account. All these small amounts together total the income you want to receive. The amount you receive may not exceed your average net profit plus average fixed monthly operating expenses. You prove this with your annual figures, your income tax return, or financial statements. Do you stop participating in the donation circle? Then you will receive back the amount that is still in your account minus administration costs.

The income you receive from the donation circle is tax-free. This is because you do not exceed the maximum amount of €2,418 that you may receive tax-free per year from an individual. The deposits you transfer from your own schenkkring account are not deductible. You can think of this money as your own savings. If a member of the donation circle reports sick wrongfully, the circle terminates their membership.

Advantages

• You can also join a schenkkring if you have a history of illness.
• There is no medical examination.
• You know the entrepreneurs in your donation circle.
• You don't have to show a doctor's certificate in case of illness. A donation circle works based on trust.
• You do not pay taxes on the donations you receive when you are ill.
• The money remaining in your schenkkring account after donations to sick people within the circle remains yours.
• If you stop participating, you will receive back the amount in your account minus an administration fee.

Disadvantages

• You cannot just sign up, usually you have to be asked to participate.
• You receive donations from the donation circle for a maximum of 2 years. Are you still sick after 2 years? Then you can apply for welfare benefits. Whether you are entitled to this depends on your assets and the income of your partner, if any.
• You do not receive guidance on illness and reintegration.
• You usually have a one-month waiting period until you receive the donations.

Conditions

Sometimes, with a mental illness such as burnout, you cannot use a schenkkring in the first year. Also, there are donation circles that require your business to be active for at least a year before you can participate. Are you looking for a schenkkring? Check out the options in your area and compare the terms and conditions of different circles.

Other alternatives for the AOV

There are a number of ways you can protect yourself against loss of income due to illness. As well as a donation circle, you can also take out disability insurance, crowdsurance, or voluntary AOV through the UWV. The form of protection that suits you best depends on your personal situation and wishes.