Self-employed workers prepare for year end

Although there are usually huge benefits in getting a Spain-qualified accountant to handle this, albeit at a cost, the self-employed have until January 30 to complete the fourth quarterly IVA self-assessment of 2023, the quarterly declaration with which they will close the fiscal year. This model is also one of the most important, since in the last three months of the year businesses usually concentrate a good part of the income that they need to include before the end of the year, so the result to be paid can be higher.

To help point you in the right direction, the experts at Self-Employed and Entrepreneur provided a rough guide. As every year, one of the most frequent doubts of self-employed workers and SMEs is what expenses they can include as deductibles in this last quarterly declaration of the year in order to reduce their tax bill as much as possible. Although the deductibility of many invoices will depend on the business sector and whether they were linked to your activity, there are some that tend to present fewer inconveniences than others.

Some of the expenses that the Treasury generally accepts as deductible are all those that have to do with business operating consumption – raw materials or the purchase of materials for the activity -, the self-employed person’s daily allowances or services of professionals that the business hires – from the manager to the advisor or lawyer, and the accountant.

There are also other expenses that are usually easily admitted as IVA deductible, such as the purchase of the vehicle, the Internet bill or the mobile phone, as long as some specific requirements are met. For example, in the case of purchasing a car or the rental fee, the expense is easily deductible as long as only 50% of IVA is included.

In addition, there are other common expenses for these self-assessments to be submitted in January that can also be deductible for the self-employed, such as greeting cards and other Christmas gifts.

Although there is no expense that is deductible in itself – since it will depend on the activity of the self-employed person – there are some that do not usually cause problems with the inspection as long as they are directly and exclusively related to the activity of the self-employed person and, very Importantly, a complete invoice is available to justify it.

Operating expenses are the largest item and have the greatest number of deductible expenses for the self-employed, since they are all the expenses generated by the purchase of materials necessary for the development of the activity.

These products necessary for the development of the activity that have been acquired in the current quarter are deductible and usually represent the highest amount in the deductions of the majority of the self-employed. It is not easy to specify the materials or products that are deductible since, in this case, it will depend entirely on the type of business that the self-employed person has.

A designer or architect, for example, could include as deductible expenses his purchases of special drawing materials, papers, etc., while a hotelier could include the goods to cook and then sell or the drinks served to clients, as well as cutlery, glasses and other materials necessary to carry out the activity. Likewise, a hairstylist can include scissors, clippers, and all hair treatment and specialty products, such as shampoo, dye, and conditioners.

On the other hand, a self-employed person running a travel agency – like almost any business – may deduct office supplies such as notebooks, pens or folders.

Investment goods

As with operating consumption, investment goods are one of the easiest items to deduct for the self-employed and also one of the most extensive, since they depend on each activity and business profile.

These expenses include all types of machinery and goods that are purchased for the activity, which can range from a hair dryer for a hairdresser, to an industrial freezer for a restaurant or butcher shop and even spare parts.

Computers deserve special mention, as they are deductible investment assets for many self-employed workers since, today, any business could justify that it needs it to carry out its activity, from making staff payrolls to sending emails to suppliers.

Independent professional services needed:

One of the few expenses whose deduction never causes problems for the self-employed are those for professional management, consulting, lawyer or notary services.

If the self-employed person has a manager or advisor to keep their accounting, or has required the services of a lawyer or an external professional to carry out the activity, the amount of their invoices can be deducted in the quarterly declaration. An easily justifiable expense since it is directly related to the activity carried out by the self-employed worker.

Among these services, many others could be included such as economists, lawyers. auditors, notaries. architects and engineers – for possible works, for example -, experts, commercial agent commissions and even computer specialists.

Local rental

According to the legal website Iberley, in this section two cases can be differentiated: the rentals of commercial premises, offices and offices, which, on a mandatory basis, carry IVA and the rental of housing partially affects the economic activity, in which in case the self-employed worker carries out  activity from home.

Firstly, the leasing of a business premises is an operation subject to IVA, so it always generates the right to deduction if the self-employed activity is carried out there. Only business owners or professionals who have a document justifying their right, that is, an original invoice issued by the lessor, may deduct this expense.

A different issue is if the self-employed person works from their own home, since the expense is more difficult to deduct and a series of requirements must be met:

– The home must be affected by the activity. To do this, it is required that the condition of the home and the percentage in which it is affected be communicated to the Treasury through form 036 or 037 (simplified census declaration). The Tax Agency usually allows this deduction to be a maximum of 30 percent.

-The landlord must issue the self-employed person the corresponding invoice, including IVA and personal income tax withholding, an issue that is not always done.

– Include the invoice in the accounting.

Living expenses:

Although it was one of the novelties of the Law on Urgent Self-Employment Reforms, which came into force in January 2018, many self-employed workers are still unaware that living expenses can be deducted. Of course, it must be taken into account that the deductibility of these diets is possible, as long as they are made outside the home, paid by card and the receipt is kept.

Section c of article 11, where the deduction for maintenance is included, establishes its conditions and provides that “the taxpayer’s own maintenance expenses, incurred in the development of the economic activity, will be deductible whenever they occur in establishments, restaurants and hotels, and are paid using any electronic means of payment, with the quantitative limits established by regulation for the allowances and allowances for normal living expenses of workers.

Specifically, the regulations indicate that the self-employed can deduct up to 26.67 euro per day in food expenses in the national territory and 48.08 euro if they have occurred in a foreign country.

Representation expenses such as meals with clients:

Until now, the deduction of representation expenses is, in almost all cases, a losing battle for the self-employed. The Treasury did not consider the invoice issued by the restaurant as sufficient proof, so proving with solid evidence the purpose of a meal was so complicated that it could be considered an expense almost impossible to deduct without risk of penalty.

However, the Supreme Court established jurisprudence with ruling 458/2021, precisely on the deductibility of this expense for self-employed workers. The judicial authority thus positioned itself against the criteria of the Treasury, which, as a general rule, rejects any deduction that is not directly related to the business and requires strict justification of the expense.

Thus, self-employed people now have the right to deduct any expenses derived from meals, dinners or even gifts to clients or suppliers without the need for this service action to result in justified income for the business.

Attendance at fairs or events related to the activity

Although it is one of the most unknown deductions for the self-employed, it does not usually cause problems with the Administration. It is common for many freelancers to attend fairs or events related to their business as a buyer or exhibitor. As long as they are directly related to the sector and their relationship with the business can be justified, they are deductible.

Entries to fairs, conferences and other events that may be interesting for the business can also be included as a justified expense and, therefore, deduct IVA – if we have invoices – or declare it as an expense, if we have a receipt.

Registration to professional magazines

As with attendance at fairs and events, registration and fees for magazines, or even information websites, are deductible. Of course, as long as they are directly linked to the activity carried out by the self-employed person.

Training

Although since January 1 self-employed workers can now access free public training – they have been paying for it for a year – this offer has yet to be articulated. Until the moment it is launched, attendance at private courses that train the entrepreneur or self-employed worker in their sector is deductible.

Purchase of a web domain

In the same sense as purchasing a computer, getting a domain for your business website is perfectly deductible. In fact, it’s very easy to justify. If the platform is up and running and the content is related to the business or sector in which the self-employed person carries out his or her activity, there will be no possible doubt.

Of course, payment for the services of professionals or developers who launch said website is also deductible in the quarterly declaration.

Advertising and business cards

The costs of advertising your brand or your business are deductible. If, for example, a self-employed person invests an amount in Facebook ads or any other type of advertising format in order to give visibility to their business, they can include these expenses in their self-assessment as deductibles. Additionally, professionals can also deduct IVA on the costs of creating business cards to boost their personal or business brand.

Internet and landline

Although internet and mobile are expenses that, in themselves, could be classified as conflictive due to the difficulty of proving exclusive use for professional purposes, there would be an exception: lines that are contracted only for the office or commercial premises. This would be the case of the landline and the internet of a restaurant or a law firm.

Purchase of a vehicle (up to 50% IVA)

Despite the fact that the vehicle is the conflicting expense of the self-employed with the Treasury par excellence, its deduction does not usually cause problems in IVA “as long as only half of the IVA is included. The Tax Agency usually assumes a 50% affectation of form automatic in the purchase of the vehicle and almost never checks these expenses. Always, of course, it is an expense with an invoice and within the logic. If a self-employed person includes the VAT of a Lambhorgini, it is likely that, although it only affects 50%, receive a verification from the Treasury”, explained the expert from AGM Abogados

Something different are the expenses derived from the vehicle – fuel or inspections. “There are Administrations that are following the same criteria as with the purchase and extend this 50% impact, that is, they admit that since half of the purchase of the vehicle can be deducted, 50% of the fuel or 50% can also be deducted on repairs. However, in this case, there is a risk that the administration that verifies the declaration will not follow said criteria,” said Jordi Rovira

According to advisors and experts in the field, deducting all these expenses does not usually cause problems when filing the return. However, the truth is that there are few that can be deducted with zero risk.

In January you can also deduct VAT on some Christmas expenses

In December, thousands of self-employed people incur Christmas-related expenses that in some cases are deductible. Although Christmas hampers or business dinners are problematic, in January businesses can deduct other gifts.

For example, Christmas greeting cards can be included as a IVA and Personal Income Tax deductible expense in the self-employed person’s invoices, as long as it can be demonstrated that it is related to the activity. Its conception is similar to that of business cards, it is an expense that is understood as advertising with a client, a supplier, and even the employees themselves, which is not a liberality, but something to maintain relationships. That makes it deductible.

However, it must be taken into account that advertising objects must visibly bear the name of the business or professional who produces or markets goods or offers certain services. Furthermore, in order to be IVA deductible, its cost cannot exceed 200 euro per year per recipient.

Finally, as we said at the start, to make better sense of all of this, it is a good idea to appoint an accountant to handle your affairs, but it is then equally important to be open and upfront and submit everything you consider a business expense for them to sort out.

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