The self-employed and their clients

To constitute as a self-employed professional the number of clients may be important. This text we will explain how the Tax authorities determine if you are a self-employed professional and that the number of clients can effect this qualification.

Self-employed professional or employee?

What self-employed professionals have in common is that they work for their own benefit and are faced with various risks. Because of this self-employed professionals and employees are treated differently for the taxation. Self-employed professionals are faced with fiscal benefits and special regulations for taxes and premiums, the following criteria are important for the qualification of the self-employed professional:

Independency

We can speak of independency if the self-employed professional determines how he/she works and therefore is not subject to the employer-employee relationships in regard to the client. This means that the client does not determine when you work nor can the client control how the work is done specifically.

Investing in enterprise

Actions are taken to ensure the continuation of the enterprise, such as acquiring own assets, building wealth and other such activities.
Entrepreneurial risk

A self-employed professional bears entrepreneurial risks such as damages to assets, unsatisfied clients and non-paying debtors.

Aiming for profit

All of the tasks conducted by the self-employed professional must be with the purpose of profit. We can speak of a profit motive if profit is intended and can realistically be expected. If for many years loss has been sustained, consequently, the expectation for profit will be low.

Number of clients

In most cases a self-employed professional has various clients and the profit made over the years varies.

Self-employed professionals can, contrary to employees, profit of various fiscal deductions in the income tax. The most important deductions are de zelfstandigenaftrek (the self-employed professional deduction) and the MKB-winstvrijstelling (SME- profit exemption). For more information regarding entrepreneurship we refer you to this page.

Verklaring Arbeidsrelatie (Declaration of Independent Contractor Status)

It is sometimes difficult to determine whether you are an entrepreneur or an employee, clarity, however, is often desired. If you are an employee your client must, as the withholding entity, deduct, for example, pay roll taxes and social contributions. An entrepreneur is, in many cases entitled to various tax-deductions. To create clarity a self-employed professional can apply for a Verklaring Arbeidsrelatie (from now on called VAR) at the Tax Authorities. This is a confirmation from the Tax authorities which fiscal status the income from your activities has. By the Tax Authorities qualified self-employed professionals receive the VAR winst uit onderneming (profit from entrepreneurship/ WUO). With this, self-employed professionals can confirm to the clients that they qualify as a self-employed professional. A VAR is valid for the maximum of one year and must be reapplied for every year. From January 1st 2015 The VAR will be replaced by the BLG. Click here for more information.

Number of clients

As mentioned before,  in some cases the number of clients is important for the qualification of a self-employed professional. However, the tax authorities do not look at the number of your client but rather to the relationship of authority between you and your client. In the case of a relationship of authority you qualify as an employee. We can speak of a relationship of authority if, simply put, your client determines at what time, when, where and how you perform the activities. In this situation the client can be considered your employer.

What if you only have one client?

It is possible that if you only have one client, you still qualify as a self-employed professional. This happens if there is no employer-employee relationship between you, as a self-employed professional and your only client. This can happen, for example, if your client does not give you instructions because the client does not have understanding of your activities. An example of such a situation is when a company contracts an ICT-manager for the automation of a company. Furthermore, it can be difficult for a starting entrepreneur to find multiple clients. Working for only one client is approved by the Tax Authorities, in some cases, at the start of your enterprise .

Agencies and your position as a self-employed professional

To qualify as a self-employed professional different rules apply than when contracts are obtained through an agency. If you have a contract with an agency while working on assignments for the final client, the agency is designated as the only client. The answer to the question whether or not remployer-employee relationship exist between you and the agency determines whether or not you qualify as a self-employed professional.

The number of clients is not always decisive

The tax authorities have determined that the number of clients for whom you work for as a self-employed professional is not decisive for the assessment whether or not you are an entrepreneur. It does need to be clear that working for one or a few clients long term could be qualified as a employer-employee relationship, causing the entrepreneur facilities to be claimed back.

It is, therefore, important to know whether or not a employer-employee relationship exists.

Usually it is so that the less clients you work for, the greater the chance employer-employee relationships exist, causing the entrepreneurship to be rendered void.