Reimbursement of expenses directly compensates you for your work-related expenses. The reimbursement is not salary, and are therefore tax-exempt.
Reimbursement of Expenses: Cost of materials
Light entrepreneurs can directly deduct the cost of materials related to the job – this includes all equipment and materials that are left to the customer or the worksite. In addition, light entrepreneurs can deduct materials and tools that are worn during the job.
A family hires a cleaner to clean their home every month for 200 euros per cleaning. It has been agreed that on the first cleaning, the cleaner will provide the necessary cleaning equipment which will be left at the family’s house for future cleanings. The cleaning supplies cost 100 euros.
The cleaner invoices the family 200 euros for cleaning. This is salary, and will be subject to the necessary deductions and side costs.
In addition to the salary, the cleaner can deduct the cost of the cleaning supplies as expenses (100 euros). The reimbursement of expenses will be paid as tax-free on submission of a receipt.
In the example, the cleaning supplies were costs that the cleaner can deduct as tax-exempt expenses. However, if the cleaner had purchased a vacuum that can be used for many different customers – or the cleaner’s private use – the price of the vacuum could not be deducted.
Reimbursement of Expenses: Travel Expenses
If a light entrepreneur uses their own car for a business trip, the customer can pay a tax-free kilometer expense for the use of the car. The price of the kilometer expense is determined in a yearly decision by the tax office. In 2022 the price is 0,46 euros per kilometer (0,44 euros per kilometer in 2021). Only the kilometers are deductible, not any other costs related to the car such as windshield washer fluid.
When adding the amount of driven kilometers, you must have a driving journal that is filled according to the directions from the tax office. This is called a logbook and it must be retained for possible future use.
You can also add for example work-related tickets for public transport to your expenses.
Accommodation costs can be added if you have a work-trip in a different town that lasts for multiple days.
Reimbursement of Expenses: Meal expenses
If a light entrepreneur does not have the opportunity to eat at their normal place to eat, and does not earn per diem allowances for the same days, they can add meals eaten during work hours as meal expenses.
The maximum amount for meal expenses is 11,25 euros. The payment of meal expenses requires that the light entrepreneur is not being paid per diem allowance for the work trip and that they are not able to eat at their normal place to eat during lunch hour.
The receipts for the meals and any proof of the necessity for the meal expense (for example a calendar marking for a meeting) must be personally saved for later use.
Reimbusement of Expenses: What expenses cannot be reimbursed?
Any expenses that may include personal use of have a long-term usability are not eligible for a reimbursement. Examples of these are clothes, a phone or a computer. However, you can add these as expenses for the production of income in your personal taxation.
Also, please remember that for example meal and kilometer expenses are not reimbursed in full (according to the receipt), but they are reimbursed according to their taxational value. The tax benefit will therefore differ from the actual paid amount.
A light entrepreneur has lunch at a restaurant and orders a meal worth 35 euros, and saves the receipt. However, the final reimbursement for expenses will be maximum 11,25 euros.
Please note that if the customer has agreed to pay the expenses according to the receipt, then the amount will be reimbursed as agreed with the customer.
Paying the reimbursement of expenses
The reimbursement of expenses will be paid according to the tax office’s regulations.
The sub-total amount of the invoice will be split into two parts: salary paid for the job and expenses – if they have been added on the invoice. Taxes and possible side costs will be paid for the salary, but there will be no deductions made from the expenses.
A few notes concerning payment for reimbursement of expenses:
- Expenses cannot be withdrawn as advance salary, because they can only be paid out once the customer has paid the invoice.
- Expenses are paid as a lump sum, not in parts.
- Expenses cannot be larger than the available net salary.
Many expenses that cannot be reimbursed through an invoicing service are eligible for deduction in your personal taxation.
Expenses in FREE.fi’s day-to-day
As mentioned above, light entrepreneurs may have different types of expenses, such as meal and travel expenses, during working hours. These expenses can be reimbursed tax-free, as long as there is a valid proof of the expenses. In addition, the expenses must be added to the FREE.fi system accurately and on time.
The added expenses will be reimbursed as a tax-free part of your salarysalart and paid separately, but at the same time as the salary. Expenses are not added to the invoicing amount. The expense reimbursement will be received as tax-exempt income.