Clothing for Your Business: How Does It Work and What Should You Pay Attention To?

As an entrepreneur, you might wonder if you can claim clothing as a business expense. While this can be fiscally attractive, the Tax Authorities have strict rules. In this guide, we explain when clothing is tax-deductible as a business expense, how it works if you want to test a product or garment, and what you need to pay attention to.

When is clothing tax-deductible as a business expense?

Not all clothing you purchase as an entrepreneur can be claimed as a business expense. The Tax Authorities distinguish between:

• Workwear → Deductible
• Private Clothing → Not Deductible

Workwear is only deductible if it meets one of the following conditions:

• The clothing is only suitable for wearing during work (for example, a uniform or overalls).
• The clothing features a logo of at least 70 cm² and is therefore recognizable as company clothing.

A tailored suit or smart clothing for business appointments is not considered workwear, as you can also wear it privately.

How do you process workwear in your administration?

If you purchase workwear that meets the requirements, you can book it as business expenses. This means that:

• You can deduct the costs from your profit, which results in tax benefits.
• You can reclaim the VAT, provided you are VAT-registered.

Please note that you must keep receipts and invoices carefully and be able to demonstrate that the clothing complies with the rules.

What if you want to test a product or item of clothing?

Many entrepreneurs, especially in e-commerce, want to test products before selling them. This also applies to clothing. But what are the tax implications?

• Are you testing a product to assess its quality? Then this can be booked as a business expense, provided you can demonstrate that the product is part of your business activities.
• Do you use the product privately after the test? Then you must make a correction in your accounting. This means that you process part of the costs as private expenses and cannot fully deduct the VAT.
• Do you sell the product after the test? Then it remains a business expense, and it is fully deductible as long as you issue an invoice for it.

Do you want to test clothing items before purchasing them for your webshop? Then make sure you record these costs in your administration as test purchases and not as personal purchases.

What if you start a clothing line?

Do you want to sell clothing through your webshop? Then you will have to deal with purchasing costs and VAT rules.

• The purchasing costs of the clothing you sell are fully deductible.
• You can reclaimthe VAT on purchases, as long as you don't use the clothing for private purposes.
• Do you give away clothing for promotional purposes? Then a VAT adjustmentmay apply, depending on the value.

Keep in mind that if you wear clothing from your own collection, you must process this in your accounting. This is considered private use, unless you use it for promotion (e.g., with a large logo).

When is clothing a business expense?

• If you wear company clothing with a visible logo.
• If you need workwear that is unsuitable for private use.
• If you test products for your webshop and can justify them as business expenses.
• If you're starting a clothing line and selling clothes as part of your business.

Business clothing can be beneficial, but the rules are strict. Make sure you can clearly justify why the clothing is business-related and process it correctly in your records.

Want to know how to best handle this? Get in touch with Suits Finance, your e-commerce accountant, for personalized advice.

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