Which expenses can be claimed by the self-employed as deductible costs - examples
This summary contains examples and interpretations of controversial and questionable types of expenses which may or may not be classified as tax deductible costs.
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The list prepared by us will enable an assessment of which of the expenses incurred by the entrepreneur are ambiguous, and what conditions must be met by a given purchase in order to be classified as a tax deductible cost.
The general rules of accounting for expenses by an entrepreneur can be found here: What expenses are deductible for a self-employed person.
Purchase of a watch with a chronograph function by an attorney
The applicant conducts legal activities as part of a private law firm. The main part of this activity concerns drawing up submissions and various types of legal opinions and representing the clients at courts and administration authorities.
A time sheet kept on a daily basis that is accurate to 5 minutes and indicates every subsequent performed task, including the time of its performance, in a form of a Microsoft Excel document, forms the basis for settlements with the clients. The daily breakdowns are prepared for the clients based on the timesheet, which once approved, constitutes the grounds for the issue of invoices for services to the clients. Therefore, a device with a stopwatch/chronograph function is an important tool in the Applicant’s work, as it enables accurate measurement of the time devoted to individual tasks, with the possibility of immediate suspension of the measurement in a situation where, for example, a phone call from a court or office interrupts the performance of the current task.
The Applicant must measure the time using a portable device, which he needs to have on him at all times and which enables him to take the measurement immediately, stop it, continue and sum up the time of a specific task. An ordinary watch will not be sufficient for that purpose.
The Applicant intends to purchase a Russian mechanical (“winding”) watch, whose price is PLN 2,490 (one of the cheaper options on the market) and plans to use it only on days during which he is working - on these days only, he needs a device for constant and accurate measurement of the time spent on individual tasks.
The expense incurred by the Applicant in relation to the purchase of a watch with a chronograph function, meeting the criteria above, can be classified as a tax deductible cost – pursuant to art. 22 (1) of the Personal Income Tax Act. It should be stressed that the Applicant, as the entity benefiting from classification of the expenses identified in the application as tax deductible costs, is required to demonstrate a causal relationship between the expense incurred and his non-agricultural business activity and also to correctly document this fact.
(Individual interpretation: A letter from the Director of the National Revenue Administration Information Centre dated 8 June 2021, no 0113-KDIPT2-1.4011.408.2021.1.DJD).
Purchase of glasses/lenses for work at a medical clinic
The Applicant obtained the right to carry on the profession of dentist and started her business activity in the form of a private medical-dental practice. Because of the specific nature of the services performed, and in order to protect the eyes and because of hygiene requirements, the Applicant has to use special glasses that protect the eyes from biological material (patient’s saliva and blood, as well as the remains of treated – drilled teeth), filings of materials, chemical materials used at the dentist’s practice (bonding systems, rinsing liquids, or medications applied to the mucosa). At the same time such glasses are adapted for attaching face shields and magnifying devices (dental loupes). Owing to a sight defect of -1.75 dioptres, the Applicant must have special corrective lenses made individually by an optician to perform dental work, and their absence would make it impossible for the Applicant to carry on the profession of a dental surgeon. Therefore, the Applicant believes that she would be justified in classifying the expenses incurred for eye test and purchase of corrective glasses as a tax deductible cost for the business activity engaged in. At the same time, the Applicant declares that the purchased glasses and lenses will be used by her only for work at the dental practice. Similar to a medical coat or shoes, these glasses are constantly exposed to contact with biological material in the course of work of a dentist and should not be used outside the medical practice.
The Head of the Tax Office issued a positive decision in a similar case, which was confirmed in another interpretation issued to a taxpayer running a dental practice. However, with regard to the individual interpretation referred to by the Applicant, under which a different decision was made, it should be stressed that differing decisions of the tax authorities, even in similar matters, may not form the grounds for requesting a same resolution of the Applicant’s case, if the content of the legal regulations prevents it.
Expenditure on an eye test and the purchase of corrective glasses and lenses is primarily intended to protect her health. The expenses determined by the health condition of a self-employed person are expenses of personal nature. In the event of a sight defect or its deterioration, a natural person is forced to purchase corrective glasses or lenses, regardless of whether he/she runs a business or not. Thus, the direct purpose of this type of expenditure is to protect the eyesight, rather than generate income from non-agricultural business activity. Despite stressing that the Applicant will use the purchased corrective glasses and lenses only for work at the dental practice, the above purchase is determined by the Applicant’s health, meaning a sight defect that requires correction, and therefore is an expense of a personal nature, independent of running a business.
In the opinion of this Tax Office, incurring expenses for the eye test and the purchase of corrective glasses and lenses does not affect the level of revenues obtained from the provision of services performed as part of the business activity and is unrelated to the activity carried out as a source of revenues.
(Individual interpretation: Letter of the Director of the National Revenue Administration Information Centre dated 7 November 2019, no 0113-KDIPT2-1.4011.423.2019.1.ISL).
Lunch with a client
A deductible cost may concern the cost that is related to the business activity conducted and was incurred as a result of its conduct. The exception concerns the costs mentioned in art. 23 of the Act which may not be tax deductible costs and reduce the tax base. The expenses incurred on a meeting with a client at a restaurant, lunch or other refreshments are ambiguous and there is a risk of classifying them as a representation expense.
And the representation expenses, pursuant to art. 23 of the Personal Income Tax Act, are excluded from the list of expenses that can be a tax deductible cost.
The concerns of the entrepreneurs are that neither the PIT act nor any other act explains unequivocally what such representation actually is. Pursuant to the verdict of the Supreme Administration Court dated 17 June 2013 (case ref no II FSK 702/11) the purpose of incurring the expense needs to be determined in order to ascertain whether it is a representation.
Unfortunately the term of representation is not defined directly and despite the court’s verdict it can be interpreted differently. If a business meal is related to a meeting with a business partner or a subcontractor, it can be regarded by tax authorities as activity aimed at promotion of a positive company image or building of the image to facilitate the conclusion of the agreement, meaning an expense of a representational nature which cannot be a business cost. If building the company’s image or making a good impression on a business partner/subcontractor was the main purpose of that meeting, then a meeting at a restaurant cannot be classified as a business cost. The situation looks different however, if the purpose of the meeting is actually professional and concerns for example a discussion of the details of the cooperation. In that case the expense can be a tax deductible cost.
Catering at a workshop with a trainer
The tax authorities see no obstacles to include expenses related to the organisation of a training or workshops as costs, as they are related to generating income.
The applicant incurs expenses related to the organisation of training, seminars, conferences and advertising events for business partners (information and promotion activities or promotional and advertising activities), which constitute the expenses incurred, among others, for the regular refreshments and the purchase of non-alcoholic beverages, the hire of a catering service or the hire of a comprehensive conference organisation service (invoice issued by the organiser), including a catering service.
The interpretation of the tax authority says that, according to the Act, it should be stated that the expenses incurred by the Applicant may be recognised as tax deductible costs of the business activity conducted, as long as these expenses do not have the features of grandeur, lavishness, and their nature does not indicate the creation of a positive image of the company, i.e. creation of a better external perception of the company when compared to business entities providing or offering similar services or products. It should be noted that activities whose main purpose is to improve the image of the entrepreneur, are expenses that are classified as representation costs, which may not constitute tax deductible costs of the business activity being conducted.
(Individual interpretation: Letter of the Director of the Tax Office in Katowice dated 26 July 2011, ref no IBPBI/1/415-454/11/ESZ)
Atypical means of transport: bicycle, scooter, roller skates
Although a bicycle, roller skates or an electric scooter are not very business-like means of transport, many people use them. They can be classified as tax deductible costs subject to certain conditions. The primary condition concerns the actual use of equipment for running a business and the scope of equipment use must be demonstrated, e.g. the intention of reaching the customer or company faster, especially during rush hours in the city.
Atypical means of transport do not exclude having a company car, as they can be an alternative to using a car in spring, summer and even autumn. These forms of transport are also a sort of a safeguard in the event of a car breakdown. Atypical means of transport also allow to reduce other costs, such as car maintenance, fuel or parking costs.
The insurance agent applied for an individual interpretation in relation to the purchase of an electric scooter of the value of PLN 2,000. Despite having a company car, the applicant argued that he often meets customers in the city centre, where it is not only difficult to get to or find a parking space, but consequently he also incurs higher costs related to higher fuel consumption or parking costs. The scooter would enable the applicant to serve his customers more efficiently and at the same time more quickly. According to the answer obtained - the cost of buying a scooter may be included in the tax deductible costs, provided that it will be used exclusively for business purposes. The deduction can only be made once, in the month when the scooter was purchased.
(Individual interpretation: Letter of the Director of the National Revenue Administration Information Centre dated 7 August 2019, ref no 0112-KDIL3-3.4011.242.2019.2.TW).
Cleaning supplies and laundry
The purchase of cleaning supplies can be recognised as the tax deductible costs if the business activity is conducted outside the place of residence. When the entrepreneur conducts his activity at his house or apartment, in a part set aside, but with a shared toilet, the provisions of the tax law do not exclude the expenses on cleaning from the tax deductible costs. These expenses cannot be included however in tax deductible costs due to their personal nature. The toilet is a place shared both in business activity and private life, with a dominating private use; the expenses on cleaning supplies associated with the cleaning of the toilet cannot be included in the costs.
Decision on the interpretation of the tax law of the Second Tax Office in Gdynia, ref no PD2/4111/415-0036A/06).
Protective clothing or clothing with company logo, different from privately worn clothing, constitutes part of that company’s assets and the expenses for their laundering can be classified as a business expense.
(Individual interpretation: Letter of the Director of the National Revenue Administration Information Centre dated 18 September 2017, ref no 0114-KDIP3-1.4011.235.2017.2.IF)