Lump-sum expenses for self-employed persons: who is it worthwhile for?

This article will give you a clear overview of what exactly flat-rate expenses are, how the different rates work, including their ceilings , and who can claim them. You’ll find out what records are required, how VAT plays into the decision-making process and when a flat rate is better than actual costs. You will also learn how a flat rate will affect tax, discounts and, most importantly, your credit rating with the bank when applying for a loan.

What is a lump sum expense and how does it work

A lump sum expense is a statutory percentage of your annual income that you deduct as an expense instead of documenting every receipt or depreciating assets. The percentage depends on the type of business (30-80%) and at the same time there are maximum amounts that cannot be exceeded. You can apply the flat rate to all of your business income in one year, or use different rates for different activities if you actually do multiple trades (e.g. crafts and consulting).

The basic logic: you take your income for the year and deduct the relevant percentage as an expense. The result is your self-employment tax base, on which you calculate a tax of 15% (or a progressive rate if you are in a higher bracket). The flat rate also includes all types of expenses, including wages or depreciation – so you can’t add anything extra.

Expenditure flat rate 80, 60, 40 and 30%

Today, the following four rates and maximum amounts of expenses that can be claimed per year apply:

• 80% of income from crafts and agricultural, forestry and water production – maximum of CZK 1,600,000 of expenditure per year.
• 60 % of the income of other trades, i.e. free, tied and licensed trades – a maximum of CZK 1 200 000 of expenditure per year.
• 40 % of the income from other independent activities outside the trade (e.g. freelance, royalties, intellectual property rights, experts, interpreters, insolvency practitioners, etc.) – maximum CZK 800 000 of expenditure per year.
• 30% of rental income – maximum of CZK 600,000 in expenses per year.

In practice, this means that all flat-rate expenses will reach the ceiling at an income of CZK 2 million. CZK. But beware of the mix of activities: if you have income that is subject to different percentages at the same time, you apply each type of income to its own flat rate and then add them up. It is not possible to combine a flat rate for one activity and actual expenses for the other.

Who can claim flat-rate expenses and what are the conditions

Those who have income from self-employment under the Income Tax Act (in other words, self-employed persons) can use flat-rate expenses without special permission, they just have to choose them in their return. However, they must not fall into groups that are not expressly allowed by law, such as unincorporated associations where members do not share income and expenses equally, or cases of joint ownership of property where income and expenses are not apportioned according to shares.

Fixed expenses and accounting

What you need to keep records of: even flat-rate owners keep records of income, debts, assets and the usual documents. The advantage is that you do not deal with the structure of expenses. However, if you are a VAT payer, you must keep records for VAT and archive tax documents.

Administratively, therefore, flat-rate expenses are among the simplest – you don’t deal with receipts and depreciation, and the flat-rate also covers wages and other costs. That’s time and often accountancy costs.

Flat-rate expenses and tax credits

If you claim flat-rate expenses, you’re normally in the normal income tax regime, so you can claim tax credits (e.g. basic rate tax credit, child tax credit etc.).

VAT payer and flat-rate expenses

A VAT payer can claim expenses as a flat rate. You just need to keep records for VAT and calculate the income without VAT when calculating the lump sum expenses (because VAT is not income for income tax – so you work with tax-free amounts in terms of the lump sum).

When is lump sum expenditure worthwhile and when is it better to stick to actual costs?

It is worthwhile when your real costs are lower than the flat rate and you want simplicity. The benefit in this case is twofold: less paperwork and a lower tax base than when deducting real costs. On the other hand, it is not worthwhile when you have high real costs (e.g. wholesale/e-shop with high costs). For such businesses, real expenses usually work out better on the tax records.

Beware of the caps: once you exceed the income at which the flat rate hits the maximum, the next income does not raise the expenses and the base grows quickly.

Examples: when does a flat rate make sense?

Let’s take a look at typical situations from practice and the principles to decide: how the tax base changes, what discounts do, how the amount of income and cost structure affect the result, and when a flat tax may be an alternative:

Artisan (80%)

Imagine a carpenter with an income of CZK 1,000,000 per year. Flat-rate expenses 80% = CZK 800,000, tax base CZK 200,000. Tax 15% = CZK 30 000; after the basic taxpayer discount, the tax is reduced to zero. This type of profession often makes a profit on the flat rate because their real expenses are less than 80%, while on paper they are taxed more.

IT consultant, graphic designer, marketer (60%)

Revenues CZK 1 500 000. Expense lump sum 60% = CZK 900 000. Tax base CZK 600 000. Tax 15% = CZK 90 000 (before discounts). For this category , it depends on the amount of turnover, discounts and whethera flat tax would be better for you (see next chapters).With a 60% flat rate, entering the flat tax may be worthwhile from an income of approx. 700k. However, it always depends on your applicable discounts.

Freelancers, authors, lawyers (40%)

For example, a lawyer with income of CZK 900,000. Flat rate 40% = CZK 360,000, base CZK 540,000, tax 15% = CZK 81,000 (before discount). For these professions , a flat tax often works out better, especially if you don’t have children and other allowances and your costs are not high.

It should be noted that royalties up to CZK 10,000 per month from one payer are subject to withholding tax and do not form part of the flat-rate tax.

Rent (30%)

If you have rental income from immovable property, a flat rate of 30% with a maximum of CZK 600,000 works out well, especially if the real costs (repairs, energy, repair fund) are less than 30% of income.

How the choice of scheme will affect your creditworthiness with the bank

When you claim expenses as a flat rate, you reduce your tax base by a percentage of your income. This is worthwhile for the amount of tax paid, but in the eyes of the bank it means you have a lower official income. The bank primarily uses the tax return to assess your mortgage: it looks at your profit after expenses and deductions and only calculates your net income from there. The higher your lump sum (80/60/40%), the lower the reported profit and therefore the lower the income the bank works with. Simply put: what you save in tax, you take away in creditworthiness.

So if you are considering a loan (e.g. a mortgage), this is not an ideal situation. A simple rule applies: lower tax base = lower deductible income (the tax base is not the only parameter monitored, but it is very important). In practice, this means that you are unlikely to achieve the required loan amount or you will come out with a worse LTV/DSTI. On the other hand, an entrepreneur with realistic expenses may pay more in taxes, but has a better credit rating with the bank.

How to resolve this situation? Preferably with a year’s notice. If you know you’ll be claiming the credit, consider a short-term adjustment to your strategy: for a business where you normally lump expenses, you can switch to real expenses for one tax year to show a higher profit on your return.

Sometimes it pays to go to a flat tax, but only if you can make a convincing case for the bank on turnover and have legible statements. In both regimes, it will also help to clean up liabilities (reduce overdrafts and credit cards, which reduce creditworthiness even with zero drawdown), separate personal and business money, strengthen reserves and prove a steady income without big fluctuations. If you have the option, enlist a co-borrower with employment income or higher collateral – both can significantly improve the resulting mortgage.

Lump sum vs. flat tax expenses

When you have a lump sum expense, it means you still file a tax return, claim allowances, and your tax and levies are calculated as standard. It’s just a simplification of the expense side. By contrast, a flat tax is a special scheme where you pay a monthly ‘package’ (income tax + social + health) in fixed amounts according to band and, if you comply, you don’t file returns or reports.

For 2025, the monthly advances are set as follows:

• Band I CZK 8,716, of which tax CZK 100, pension CZK 5,473, health CZK 3,143;
• Band II 16 745 CZK, of which tax 4 963 CZK, pension 8 191 CZK, health 3 591 CZK;
• Band III 27 139 CZK, of which tax 9 320 CZK, pension 12 527 CZK, health 5 292 CZK.

Key differences:

• Lump sum expenses: flexibility, discounts and deductions are possible, but the administration of the return remains. Bonus in the bank is based on the tax base.
• Flat tax: zero administration, fixed monthly payment, no discounts or deductions. Banks consider account turnover when deciding whether to grant credit.

Who is eligible for the flat tax? In general, self-employed persons with an income of up to 2 million. CZK. Registration takes place by 10 January of the year in question.

Summary

The flat-rate expenditure is a statutory percentage of the annual income of the self-employed (80/60/40/30%) with annual expenditure ceilings of 1.6/1.2/0.8/0.6 million. CZK. They are elected on the return, cannot be combined with actual expenditure on the same income, but can be different for rent. The flat-rate taxpayer keeps simple records (income, receivables, assets; VAT payers also keep records for VAT and calculate income net of VAT) and can apply standard tax allowances. The lump sum is worthwhile if the real costs are lower than the flat rate and you appreciate simplicity; conversely, in high-cost industries, actual costs tend to be better.

In terms of financing, a higher flat rate means a lower reported profit and therefore weaker creditworthiness with banks; if you are planning a loan, it may make sense to temporarily switch to actual expenses. By contrast, a flat tax is a separate scheme with a fixed monthly payment (no rebates and no returns), more suited to simplicity and low administration; banks then mainly look at turnover in the account. The choice between flat-rate expenses, actual costs and flat-rate tax should be made according to the cost structure, income level and personal plans (e.g. mortgage).