A Dutch court ruled that cash in a sole proprietorship can move to box 3 when it lacks a credible business purpose. The case concerns a consultancy’s 2020 tax return and its bank and savings balances.
Why this matters
Cash set aside for VAT, supplier bills, tax, or equipment needs a clear purpose in the file. The reserve must fit the business on the balance-sheet date. Turnover, recurring costs, unpaid invoices, planned investment, and customer concentration can matter. An office or car plan carries little weight without a budget, quote, or dated decision. Earlier private withdrawals can also affect later balance sheets and tax returns.
Example
In 2020, a consultancy sole proprietorship held €451,050 in bank and savings accounts. The court accepted €165,000 as working capital. It put the remaining €286,051 in box 3 as durably surplus cash. Later records supported the owner’s office plans, but not a concrete plan for 2020. No investment followed. The consultancy’s limited turnover and scale also counted. At the end of 2017, surplus cash had already been recorded as a private withdrawal.
XTROVERSO tips
- Give each part of the balance a job. Separate cash for invoices, VAT, operating costs, known tax payments, investment, and business risks. Do not leave one large reserve without a clear breakdown.
- Build a 12-month cash forecast. List expected customer payments, supplier bills, tax dates, and other commitments. Compare the closing balance with the cash the business will actually need.
- Keep records while plans are current. Save budgets, quotes, property correspondence, financing emails, and dated investment decisions. Records made at the time carry more weight than later explanations.
- Put a number on business risks. Link the buffer to a real exposure, such as late customer payments, seasonal revenue, reliance on one customer, or replacement of essential equipment.
- Check earlier balance-sheet decisions. Review old private withdrawals and earlier tax classifications. They may still affect the current accounts and income tax return.
- Keep any old FOR balance separate. New additions to the fiscal old-age reserve stopped in 2023. An existing balance is a legacy item. It does not support new, undefined cash reserves.
Want your cash reserve, records, and tax position reviewed before you file?
The data, sourcing, and analysis behind this article were conducted by Linda Pavan. AI was not used to identify sources, build the factual basis, or produce the analytical judgment contained here. AI was used only as a drafting aid. The final English text was personally reviewed, edited, and approved by Linda Pavan before publication.
References
- Taxence - Correctie box 3-vermogen wegens overtollige liquiditeiten in eenmanszaak
- Rechtspraak - Court judgment on surplus cash and earlier classification
- Belastingdienst - Classification of durably surplus cash
- Rechtspraak - Judicial test for business cash reserves
- Belastingdienst - Hours criterion and zelfstandigenaftrek
- Belastingdienst - Fiscal old-age reserve
- Belastingdienst - Reporting actual box 3 return
- Belastingdienst - Box 3 processing for older years
