Making a loss as a freelancer: how to offset it and get money back

First within the year, then back and forward

A business loss is first offset against other box 1 income in the same year, for example wages from a job on the side. If you work part-time in employment and your business makes a loss, you often get payroll tax back directly. Any remaining loss first goes back three years: the tax authorities offset it against profit from those years and refund tax levied earlier.

Whatever remains can be carried forward nine years. Future profit stays partly untaxed until the loss is used up. Note: after those nine years an unused loss evaporates, so keep an eye on it.

Faster refunds: provisional loss relief

Normally the tax authorities settle only after your final assessment, which can take long, while in a loss year you can really use the money. Hence provisional loss relief: after filing your return you can request an advance payout of eighty percent of the loss to be offset. The remainder follows with the final assessment.

What to watch out for

Loss relief only works if your return is correct and the loss has been formally established. So file on time, even in a bad year. Also check the impact on your benefits and provisional assessment: lower income often means more allowances and a lower provisional assessment for this year. And review whether deductions such as the self-employed deduction are used optimally this year; sometimes shifting costs between years is fiscally smarter. That is exactly the kind of thing to discuss with your bookkeeper.