A painter can deduct the paint they use, but not the ladder.
Entrepreneurs periodically confuse costs with expenses. In this post we’ll explain what expenses and tools can be deducted from your taxes and what is considered the cost of doing business.
What are expenses?
The idea of the expenses is as follows: A painter paints his client’s living room walls for €300. It has been agreed with the customer that the price includes the paint. The paint costs €50. The painter can deduct the price of the paint as a reimbursement.
UKKO.fi is used to invoice €300, with the €50 deducted from the sum, and on the basis of the total wages paid.
Reimbursements are costs incurred directly by the work. They are not costs shared across multiple jobs. For example, the painter can be reimbursed for the cost of the paint but not the cost of a ladder as they don’t need a new ladder for each job.
Besides the salary the painter may include €50 in expenses on the invoice, which consequently is paid in full. Social security fee, taxes, insurance, etc are not deducted from reimbursements.
What expenses can I bill?
As a self-employed person, you can deduct expenses that directly are linked with your work, ie materials and accessories that will be left with the customer. In the example above, paint is clearly one such valid deduction. You can also deduct tools and equipment sold to the customer. In this case, the products or tools should also be on the bill.
An IT expert, doing computer repair work, may buy a new battery and sell it to his customer. The value of the battery can be reimbursed as the cost of the battery simply needs to be added to the bill. When providing an invoice through UKKO.fi be sure to include any receipts for expenses.
You can find more advice on receipts at the end of this post.
Accommodation & Travel Costs
You can include travel tickets and accommodation costs in your invoice if you are working in another city for several days. In this case, you may also include a per diem or meal budget. For more information regarding these costs, read: Are you puzzled by the travel expenses?
What Expenses CANNOT Be Deducted?
You cannot deduct expenses that can be used privately. For example. a photographer’s camera or a graphic designer’s computer are tools that can be used both for work and pleasure, and across numerous projects. The cost of these are unfortunately not valid deductions but sunk costs.
The same rule also applies to work clothes as these can be used even at home. The Tax Agency’s opinion is that you can use a suit for work or at your cousin’s wedding.
Another problem related to tools is that if we purchase them, then they are our property. That means we should be able to show 400 hammers to the Tax Agency, yet those hammers could be scattered across the country in our customers’ toolboxes.
You cannot deduct the costs of lunch coupons or fuel. Travel expenses are covered in more detail here.
Personal Income Tax Deductions
Many costs are not deductible in invoices but are deductible in your personal income tax declarations. More information such deductions can be found here: Vero.fi Deduction for the production of income.
How to Add Costs to an Invoice?
Compensation costs are added when you create an invoice. Enter the customer’s information and work assignments to be invoiced first.
After this you can add the costs to the invoice by pressing the "Save and add costs”, as seen in the image below.
This opens a new page where you can add expenses. At the top of the page you can see the bill these costs refer to.
For each receipt you must create its own entry. First, fill in the receipt details:
- Place of purchase: "Example Company Ltd"
- Date of purchase: "10.10.2010"
- Description: (Describe the different VAT rates)
– Hotel Night € 100 (VAT 10%)
– Hotel Breakfast € 10 (VAT 14%)
- Attach a copy of the receipt. You can either scan the receipt or take a picture of it with your phone.
- Check that the taxes and the total corresponding information match the receipt.
- Click “Save”.
A clear picture of the receipt is sufficient, UKKO.fi does not need the original receipt. To be on the safe side save the original. Management of receipts is much faster when they are provide in digital form. If for some reason you cannot send a receipt in digital form, do not hesitate to send the original by post. Remember to add the receipt details into the form before you send the receipt.
You can send receipts to UKKO.fi at:
SLP Group Oy / UKKO.fi
Note: Include your name and invoice number with the receipts so they can be referred to the appropriate invoice.