Starting a part-time business: All you need to know

There are several reasons to start as a part-time entrepreneur. You may want make an extra income alongside your job or study. Or run your business while also taking care of your parents or children. Anything is possible. Starting a part-time business is the perfect way to try out whether entrepreneurship suits you. What are the advantages and disadvantages of starting a part-time business? What if you have a non-compete clause? And what will change in terms of taxes?

Advantages and disadvantages

We listed the most common advantages and disadvantages when starting a part-time business. It is important to consider everything for your own situation to determine whether the advantages outweigh the disadvantages.

Advantages

1. If you combine your fixed job with your part-time business, you run less financial risk because you have a fixed income. In addition, you are insured against occupational disability and you build up a pension for the hours that you work as an employee.
2. Part-time entrepreneurship gives you the opportunity to find out whether entrepreneurship is right for you.
3. You can build your business at your own pace, without experiencing (external) pressure.

Disadvantages

1. Entrepreneurship can be difficult to combine with employment. You are limited in your time, making it more difficult for new customers or clients to reach you.
2. As a part-time entrepreneur, you usually cannot take full advantage of tax benefits such as the tax relief for new companies and the private business ownership allowance. In order to be eligible, you must spend at least 1225 hours a year on your company.
3. Every entrepreneur has to take care of their business records, acquisition, marketing, and other activities themself. Even if you are not that good at it.
4. Discussing your plans with your employer can be difficult. Hopefully they are willing to cooperate in realising your plans.

Tip! Can you start a parttime business in the Netherlands while you are employed or on (partial) benefits? Read this article or watch this video.

The non-compete clause

Find out whether your employment contract contains anything about ancillary activities or a non-competition or non-solicitation clause. Also, inform your employer about your plans to start your own company, to avoid misunderstandings afterwards. Who knows, your boss may even be your first customer.

What does a non-competition clause look like?

It can be disadvantageous for your employer if you start your own business or if you work for a competitor. Therefore, your employer may prevent this with a non-competition clause. Such a clause can hinder you from starting your business.

Most non-compete clauses consist of 4 parts:

• A description of the work.
• The term of the non-competition clause (usually between 1 to 2 years).
• The area or specific region (sometimes the whole of the Netherlands).
• A fine or compensation for violation.

Tax consequences

If you work as an employee and also start your part-time business, you will have to deal with income tax, VAT, and other tax matters. These are the 7 most important tax consequences when starting a part-time business:

1. Filing income tax return

If you work as an employee, income tax is automatically withheld on a monthly basis. As a self-employed professional, you must file an income tax return once a year. You pay income tax on both your wages and the profits from your company.

2. Hours criterion

If you spend more than 1225 hours per calendar year on your business, you qualify for a number of additional deductibles. This includes direct hours (billable hours) and indirect hours (such as travel time, networking, acquisition, updating your website, and administration work). Always keep track of your hours.

If you are employed in addition to your business, you have to spend more hours on your business than on your job to be eligible for the private business ownership allowance. It is therefore important to properly administer your hours in order to demonstrate this to the Dutch Tax and Customs Administration (Belastingdienst).

Are you unable to meet the hours criterion of 24 hours per week (1225 hours per year) between the beginning of March and the end of September 2021 due to the corona crisis? In that case, the Dutch Tax and Customs Administration temporarily assumes that you have met the hours criterion after all. Even if that is not actually the case. This way, you can still make use of the schemes, such as the private business ownership allowance, the working partner’s abatement deduction, and the retirement reserve.

3. Relaxation hours criterion in the event of occupational disability and pregnancy

Are you unable to work? And did you spend at least 800 hours on your business? Then you may apply the hours criterion relaxation.

Did you stop working as an entrepreneur because of your pregnancy? Then the hours you did not work during a total of 16 weeks still count as working hours.

4. Conditions for allowances

Do you receive a housing or healthcare benefit (in Dutch)? Make sure that you meet the income requirements. You may earn too much due to your extra earnings. This can result in fewer or no allowances.

5. Submitting your VAT return

In addition to income tax, you also have to deal with value added tax (VAT) for most services and products. As an entrepreneur you will receive a VAT ID number. You are required to state this number on your invoices. Make sure that you keep an overview of your invoices.

Every quarter, you must submit your VAT return online.

6. Small Businesses Scheme (KOR)

Is your turnover per calendar year less than €20,000? Then the Small Businesses Scheme (KOR) might be interesting for you. You can apply for KOR if your turnover (excluding VAT) is less than €20,000 per year and if the Dutch Tax and Customs Administration qualifies you as an entrepreneur for VAT purposes. If you meet these requirement and want to apply for KOR, you must be registered with the Dutch Tax and Customs Administration. Read more about KOR and view our KOR checklist video.

7. Taking out insurance and accruing pension

If you are employed, you are protected against occupational disability, you accrue pension, and you accrue unemployment benefits. If you start working part-time as a self-employed professional, it can be wise to determine which insurances or pension scheme you need. Private insurances, such as your liability insurance or legal expenses insurance, do not apply to your company.

Register with KVK

You only need to register with KVK if you are an entrepreneur. You qualify as an entrepreneur if you supply goods or services independently, with the intention to make a profit.

You can make an appointment online. Fill in the online registration form and think carefully about your business description. Based on your company description, KVK assigns you an SBI code. This code is used by government agencies, industry associations, pension funds, banks, and insurance companies. After registration you will immediately receive a KVK number. You pay a one-time registration fee.

Are you under 18? Then you need guidance or permission from your parents or guardians.

Are you starting a business while receiving an unemployment benefit? Always discuss your plans with your job coach first.

Checklist part-time entrepreneurship

Make sure you are well prepared when starting a part-time business with this checklist:

• Check your employment contract. Does it include anything about ancillary activities? Or have you signed a non-competition clause?
• Always check with the municipality whether you can register your company at your home address.
• List all the pros and cons for yourself.
• Make an estimate of the costs and investments.
• Make a business plan to estimate whether your plan has a chance of success.
• Find out if there is a demand for your product or service.
• Think of a company name.
• Create a website and register the domain name.
• Check your insurances.
• Think about your business records and administration. Do you have sufficient knowledge yourself or are you going to outsource it?
• How will you reach your customers?
• Register at KVK.
• After registration with KVK, you will receive your VAT ID from the Dutch Tax and Customs Administration within 2 weeks.