What are time-tracking records?
Time-tracking records (urenadministratie) offer a way of keeping track of the number of hours you spend on your business. Time tracking provides insight into how much time you spend on which business activities. You can keep track of this with a timesheet.
Why are time-tracking records important?
Keeping time-tracking records is not mandatory, but it is sensible. It gives you insight into how you spend your time. You can also use your timesheet with customers or clients, to demonstrate what you have done and when. It also helps you to better determine your cost price or hourly rate.
In addition to these advantages, time tracking also offers tax benefits. After all, registering (sufficient) hours 'proves' that you are a genuine entrepreneur and not a hobbyist. This makes you eligible for various tax benefits. Benefits that increase your profits and allow you to pay less income tax. These benefits do not apply if your legal form is a private limited company (bv). In that case, you have to deal with corporation tax.
To ensure that only 'real' entrepreneurs benefit from these advantages, the Tax and Customs Administration instated measures that include the hours criterion. This criterion means that you have to spend at least 1,225 hours per calendar year on your business to be considered an entrepreneur for tax purposes.
The hours criterion is 1,225 hours per calendar year. This comes down to approximately 24 hours per week. Are you unable to reach these 1,225 hours? Then you may still be an entrepreneur, but you may not be able to apply for the private business ownership allowance (zelfstandigenaftrek) and tax relief for new companies (startersaftrek).
Every hour you spend on your business counts for the hours criterion. For example, canvassing for clients, updating your records, or attending training courses. It is important that you make it plausible that the hours are in proportion to your business activities. Have you been running a business for more than 5 years? If so, you must spend more time on your business per calendar year than on other activities, including paid employment.
Example: Spending 700 hours annually on attracting new customers is not realistic. This is more than half of the total of 1,225 hours. You can read more about the hours criterion on the Tax and Customs Administration's website (in Dutch).
Good to know: When you are working on innovation and making use of R&D tax credit (WBSO), time-tracking records are required in order to be eligible for deduction.
Starting your business during a running calendar year
Suppose you start your company on 1 May, which means you would work 7 months until the end of the year. This adds up to about 715 hours, if you indeed put 24 hours per week into your business. But in order to be eligible for tax benefits for entrepreneurs, you must still work 1,225 hours in the months that remain until 31 December.
Hours criterion relaxed
Were you unable to meet the hours criterion of 24 hours per week (1,225 hours per year) between the beginning of March and the end of September 2020, and between the beginning of January and the end of June 2021? Then you may temporarily assume that you have met the hours criterion for those periods, even if this is not actually the case. This way, you can still make use of various provisions for entrepreneurs (including the private business ownership allowance, working partner’s abatement, and the retirement reserve). The relaxation of the the hours criterion has made it possible to avoid losing the right to tax benefits due to the corona crisis.
This measure will also apply to seasonal industries, such as the hospitality and festival sector. Entrepreneurs in those sectors may rely on the number of hours worked in the peak periods of other years.
The hours criterion for (partial) occupational disability, which is 16 hours per week or 800 hours per year, has also been relaxed. The Tax and Customs Administration will assume that entrepreneurs in this category have devoted 16 hours per week to their business.
You have had a business since 2012 and your income is recognised as profit from business activities. In 2021, your assignments ended and you have taken on a part-time job to bridge the crisis. You estimate that in 2021 you will spend a total of 800 hours on your business and 1,300 hours on your part-time job. Thanks to the relaxation of the hours criterion, you may assume 24 hours per week for the months from January to July 2021, although you may not actually reach that number in that period. This brings the total number of hours you work in your business to 1,400. This means that you will meet the criterion of at least 1,225 hours. For tax purposes, you have spent more time on your own business than on your paid employment. You are therefore entitled to a private business ownership allowance.
Keeping proper time-tracking records
You start keeping records as soon as you have decided to start a business. You already register the hours you spend preparing the business, even if you are not yet registered with the Netherlands Chamber of Commerce KVK. The same applies to expenses you have had. For example, if you register your company at KVK in August, the hours and any expenses you have incurred in preparation before that will be included. These are hours and costs you have put toward founding your company.
There are many good (free) apps on the market that allow you to easily keep track of your hours. Time-tracking is often also part of online accounting packages. Time-tracking apps and online accounting packages are usually quite user-friendly, even if you have limited accounting knowledge. Of course, you can also keep track of your hours with a timesheet in Excel. In that case, you register:
- the date
- description of activity
- direct or indirect hours
- hourly rate
- number of hours
Use one tab per month or quarter worked, depending on the size of your business.
Which hours can be counted?
You may count all hours you spend on your business. If you are a full-time entrepreneur, you usually do not have to worry about the number of hours you put in. If you are a part-time entrepreneur, this might prove to be a greater challenge. In any case, always register all your indirect and direct hours. Every hour that you declare to your customer falls under direct hours. Indirect hours are the hours you spend on: preparing and maintaining your product; trainings or courses; attracting customers; and devising and developing new ideas. Here are some examples of activities that may be counted:
- The hours you spend keeping your records up to date.
- Creating a business website.
- Visiting clients. You may also register the travelling time, but this must be plausible. So do not record 3 hours of travelling, if the customer is located at less than 50 km from you.
Tip: take a look at the example of an income tax return in this article (in Dutch). The example includes the various tax deductions.
Do you have a question about keeping records or other financial matters? Contact the KVK Financing Desk free of charge: 0800 10 14.