Flat-rate expenses do not mean a sole trader keeps no records at all. Even with the flat rate, the Income Tax Act requires keeping records of income in chronological order and records of inventory and receivables. The “flat rate” therefore concerns only the way expenses are claimed — not the idea that you do not have to track anything. Those who underestimate this risk trouble during a tax inspection and incorrectly declared tax.
A widespread misconception circulates among sole traders that flat-rate expenses mean “60 percent and no paperwork”. The first part is true, the second is not. The flat rate really does simplify the expense side, because you do not have to collect receipts and invoices for purchases. The income side and assets, however, you must track — and that is exactly where problems most often arise during inspections. Let us look at what the law specifically requires.
Does the flat rate really mean “no paperwork”?
No. Flat-rate expenses are merely a way of claiming tax expenses — instead of actual costs, you deduct 60 % of income, but no more than 20,000 euros per year, and add demonstrably paid social and health contributions. What the flat rate simplifies is the expense side: you do not have to archive receipts and invoices for purchases, because the amount of expenses is set by the percentage, not by documents.
The flat rate can be used by a sole trader or another individual with income from business and from other independent gainful activity who was not a VAT payer for the whole tax period. If you were a payer for only part of the year, you can still apply the flat rate. When the flat rate truly pays off compared with actual expenses depends on your cost level.
What must a flat-rate taxpayer record by law?
Even with the flat rate, the Income Tax Act requires keeping records to the extent set by § 6(11). Specifically, these are three things: records of income in chronological order, records of inventory and records of receivables. You do not keep records of expenses or of assets and liabilities — these are not needed with the flat rate, because the percentage determines expenses.
The reason is logical. Income must be precisely documented, because it is used to calculate not only the tax but also the flat rate itself. Inventory and receivables, in turn, affect the tax base upon interruption or termination of the business. Without these records, the tax authority could not verify whether you declared all income — which is exactly what it checks first during an inspection.
How to keep records of income?
Records of income must be kept in chronological order and broken down as needed to determine the tax base, including received documents meeting the requirements of an accounting document. In practice, this means a continuous overview of all received payments — when they arrived, from whom and in what amount. An individual taxes income upon its actual receipt, not at the moment of issuing the invoice.
The form is not prescribed by law: a clear spreadsheet or simple software is enough. What matters is that it matches your bank statements and e-kasa receipts if you accept cash. A mismatch between declared income and account movements is the most common trigger of a notice from the tax office.
Why must a flat-rate taxpayer also record receivables?
A receivable is an invoiced but not yet paid amount. Since an individual taxes income only upon its receipt, an unpaid invoice is not yet taxable income — and that is exactly why it must be recorded separately, so it is clear what is still “waiting” to be paid. Upon interruption or termination of the trade, the value of unpaid receivables is added to the tax base, so their records have a direct tax impact.
Example: a sole trader invoices 40,000 euros in a year, but by year-end customers pay only 35,000 euros. He taxes the 35,000 euros of income actually received, while also keeping a record of a receivable of 5,000 euros.
When must a flat-rate taxpayer record inventory?
A flat-rate taxpayer keeps records of inventory when they actually have some — that is, goods for resale or material. This does not concern most “service” trades that hold no stock, but it is crucial, for example, for craftsmen buying material or for sole traders who also sell goods alongside services.
Here, too, you do not separately claim the expenses of purchasing inventory with the flat rate — they are part of the flat-rate percentage. The records serve a different purpose: upon termination or interruption of the business, the value of unused inventory, like receivables, is reflected in the tax base. So it is not enough to know what you bought — you also need to know what actually remained at year-end.
How does the flat rate differ from tax records?
The difference lies in the scope of what you track. With tax records under § 6(11), you keep a complete overview — income and tax expenses, tangible and intangible assets, inventory, receivables and liabilities. With the flat rate, records of expenses, assets and liabilities fall away from this scope, because the percentage determines expenses. What remains is only records of income, inventory and receivables.
Tax records are also more advantageous for those with higher real costs than a 60 % flat rate covers — typically craftsmen, carriers or manufacturers. A sole trader considering a switch from the flat rate to actual expenses should calculate whether, given their costs, the flat rate still pays off at all.
What mistakes do flat-rate taxpayers make and what do they risk?
The most common mistake is the belief that the flat rate cancels any records. Other typical failings are:
- missing or incomplete income records that do not match bank statements,
- not recording receivables, which understates the tax base upon ending the trade,
- overlooking inventory among sole traders who also sell goods,
- applying the flat rate despite the taxpayer being a VAT payer all year.
The consequences are not merely formal. If a flat-rate taxpayer cannot produce income records during an inspection, the tax authority may determine the tax base using its own estimates, which almost always turns out against the entrepreneur. Keeping three simple records takes a fraction of the time and saves later tax assessments and penalties. So yes to the flat rate — but with order in income, receivables and inventory.
If you are unsure what exactly to record with the flat rate or whether the flat rate pays off for you at all, we will gladly set up records that stand up to an inspection without burdening you.
FAQ
Do I have to keep any records with flat-rate expenses?
Yes. Even with the flat rate, the Income Tax Act requires keeping records of income in chronological order, records of inventory and records of receivables. The flat rate simplifies only the expense side — you do not have to collect receipts and invoices for purchases. But you must record income, inventory and receivables, otherwise you risk trouble during a tax inspection.
Why should I record receivables when they are not yet paid?
An individual taxes income only upon its actual receipt, so an unpaid invoice is not yet taxable income. That is why you record it separately. The reason is fiscal: upon interruption or termination of the business, the value of unpaid receivables is added to the tax base. Without records you could not do this step correctly.
What happens if I keep no records?
If you cannot produce income records during a tax inspection, the tax authority may determine the tax base using its own estimates, which almost always turns out against the entrepreneur. Added to that is an additional tax assessment and a possible penalty. Keeping three simple records takes minimal time and fully prevents these risks.