Tax-free allowances for a light entrepreneur

For many, light entrepreneurship is an attractive way to work freely without the need to set up their own business. One of the key benefits is the tax-free reimbursement of expenses for the light entrepreneur, which can improve earning potential and reduce the tax burden. In this blog post, we will go through what tax-free allowances mean for a light entrepreneur, what types of allowances you can receive and the conditions for receiving them.

What are tax-free allowances for a light entrepreneur?

Tax-free allowances are reimbursements paid for expenses incurred for work without tax being charged. As a light entrepreneur, you can invoice your work through a billing service that pays you a salary and at the same time manages your tax-exempt expenses. These reimbursements can be for travel, accommodation and other work-related expenses. However, the conditions for tax exemption vary depending on the type of expenses involved and the basis on which they are claimed.

The role of a billing service company

Billing service companies play a key role in the payment of tax-free reimbursements. As a light entrepreneur, you contract with your client for work and related reimbursements, such as travel expenses. The billing company in turn will handle the invoicing and pay you the agreed reimbursements.

It is important to note that it is the responsibility of the billing service company to ensure that the reimbursement of travel expenses it pays meets the conditions for tax exemption. This means that before reimbursement is made, the billing service provider must ensure that all the necessary information for reimbursement of travel expenses has been properly agreed and documented. In the absence of such agreements or documentation, the reimbursements cannot be paid tax-free.

Tax-free reimbursement of travel expenses

Travel allowances are one of the most common tax-free allowances that a light entrepreneur can receive. Such allowances can include:

1. Mileage allowances: If you use your own car to travel to work, you can get tax-free mileage allowances. In 2024, the mileage allowance will be €0.53/km.
2. Per diems: A daily subsistence allowance is an allowance paid for travelling to work outside your home and place of work. The amount varies according to the length and duration of the journey.
3. Accommodation costs: If your business trip requires you to stay overnight, you can get tax-free reimbursement of accommodation costs, as long as these costs are related to the business trip and are properly documented.

Tax-free reimbursement of expenses requires that the reimbursement has been agreed between the service provider and the customer and that the billing service company is able to verify this agreement. For example, verbal agreements can be problematic, as without written documentation it is difficult for the billing service provider to verify the conditions for tax exemption.

Meal allowances and special sectors

Meal allowances may be exempt in certain special cases, in particular when the work is carried out in a so-called specialised sector, such as construction or earthworks. The exemption is conditional on the worker not being able to eat at his or her usual place of work during the meal break. In this case, the billing service company can pay the meal allowance tax-free if all other conditions are met, such as a written agreement between the customer and the service provider.

Compensation based on supporting documents

A billing service company can pay the person performing the work tax-free for reimbursement of travel expenses, such as travel tickets, based on receipts. However, this is subject to the condition that the reimbursements are actually incurred for the business trip and do not exceed the amount of the expenses. Even then, the billing service provider must ensure that the reimbursements are properly documented and meet the conditions set by the Tax Administration.

Treatment of taxable compensation

If the reimbursement of travel expenses does not qualify for tax exemption, it is treated as taxable salary. For example, travel expenses related to journeys between the employee's home and the place of work are always taxable salary. In this case, the invoicing service provider must withhold tax on these allowances and declare them in the income register in the same way as other salary income.

The travel invoice and its meaning

The travel invoice is the key document on the basis of which tax-free travel expenses are paid. The travel invoice must show the purpose of the trip, the destination, the route, the method of travel, the start and end dates of the trip and any supporting documents. The invoice will be checked by the billing service provider before the reimbursement is paid.

It is important that the travel invoice is accurate and contains all the necessary information. The billing company cannot be exempted from its obligation to check, even if the contract stipulates that the contractor is responsible for the accuracy of the travel invoice. The same applies to the responsibility for establishing the basis for tax exemption.

Contract of assignment - Electronic contract template from Kevyesti.fi

One of the most important things in ensuring tax-free reimbursement of expenses is a clear and comprehensive contract of engagement between the person performing the work and the client. The assignment agreement sets out all the terms and conditions of the work, including the reimbursement of travel expenses. It is particularly important for the light entrepreneur to ensure that the contract is written and detailed, as it will serve as proof of the agreed terms if required by the tax authorities or the billing company.

Kevyesti.fi offers its customers a free electronic contract framework. This electronic contract template will help ensure that all the necessary information and conditions, such as reimbursement of travel expenses, are properly taken into account and documented. Using the contract template also ensures that the contract of assignment is easily accessible to both you and the billing company, making reimbursement faster and clearer.

When you use Kevyesti.fi's contract template, you can concentrate on getting the job done, knowing that all the important contract information is in order and easily verifiable when needed. This reduces risk and ensures that you receive all the compensation you are entitled to, tax-free and smoothly.

Summary

Tax-free allowances are an important benefit for light entrepreneurs, which can help reduce the costs of work and improve their financial situation. To take advantage of these allowances, it is important that you and your billing service company understand the conditions of the tax exemption and ensure proper documentation. This will allow you to concentrate on your work, knowing that you will be reimbursed for your expenses in the most tax-efficient way.

Remember that tax and compensation practices can change, so it's a good idea to follow the latest guidance and consult an expert if necessary to make sure you're doing the right thing. Light entrepreneurship offers flexibility and freedom, and with the right expense claims management you can make it even more profitable.

Read more on the Tax Administration's website: Reimbursement of travel expenses paid by billing service companies - vero.fi