ADVICE! On March 27, Berlin started handing out Corona money and a gold-rush frenzy ensued. Weeks later, many of the happy beneficiaries are worrying: Were they eligible for this money? How should it be used? Tax expert Jennifer Scholl Mickel answers
Many of Berlin’s freelancers received emergency grants, but who really deserved them? (Photo by Christian Dubovan.)
On March 27, Berlin started handing out Corona money and a gold-rush frenzy ensued. Weeks later, many of the happy beneficiaries are worrying: Were they eligible for this money? How should it be used? Tax expert Jennifer Scholl Mickel answers.
On Friday, March 27, Berlin woke to sunshine. The city’s freelancers also had good news to match the sunny skies: applications to emergency grants were open. In the face of economic catastrophe, Berlin’s government was reaching deep into its pockets, planning to hand out more than €1 billion to its freelancers and small business owners. Channelled through the Investment Bank of Berlin (IBB), this unprecedented bailout delivered single grants from €5000 to €14,000 to individual freelancers and businesses with up to five employees. Designed as quick emergency relief, applications were made exceptionally unbureaucratic: the only requirements were a tax number, post address, bank details and a legal form with your company’s name. Within two days, sometimes on the very same day, 200,000 freelancers, self-employed workers and small entrepreneurs saw their bank accounts credited with up to €14,000. Many rushed for the free cash, and questions only came as an afterthought. Who exactly was eligible for this money? How should it be used? Will I have to justify anything? Could I have to return some of that money?
We gathered questions from readers and dialed up Jennifer Scholl Mickel who specialises in helping creatives and freelancers with their taxes.
Who exactly was eligible for the IBB freelancer grants?
There are two things that make people eligible for this money. Firstly, to have not already been in financial trouble before the Corona outbreak (i.e. at the end of 2019), meaning they could support themselves and, for example, not be on unemployment benefits or HartzIV. Secondly, you had to be “primarily self-employed”. The second part is vague, but I’d interpret it this way: Who’s paying your social insurance? If you had a boss paying your health insurance, then you’re not “primarily self employed”. But here a distinction should be made between before and after March 31. Up to April 1, every freelancer fitting the aforementioned criteria could qualify even if they had part time employment, no matter what. It’s been made stricter since.
So if you were a freelance artist, self-employed or a small entrepreneur, but also on a part-time contract for 24 hours a week, you weren’t eligible, right?
Before March 31, yes, as long as you fit the other criteria (like that you mostly lived off your freelance work). Since April 1 explicitly not. If your 24-hour per week job is paying your social securities, then you’re not primarily self-employed – and shouldn’t have applied.
How will I prove the crisis caused me to lose income?
First, I think they’ll look at how you (i.e. your freelancer activities) performed in the previous year. You have to take a minute and think about what your business would look like if the coronavirus hadn’t happened. Maybe you’d have new clients, or your prices would go up. That’s how you think about how the virus has affected your business. If people are smart they’ll make sure to maximise their 2019 income when you do your tax return, even if it means paying some more income tax. If you can show that your operating costs were comparable, you have less to stress about. An entrepreneur who organises music festivals, which all got cancelled won’t have much of a problem showing her losses. The ‘Kleinunternehmer’ who applied for €9000 and barely had a €4000 yearly income the last few years might have some explaining to do.
If my project can’t stay afloat and doesn’t restart once things get back to normal, will I have to repay any of the grants?
No matter what happens, I’d recommend that you make a list and write down what you used the money on. Save invoices and receipts! The money should be traceable. If you can prove it was spent on legit costs, i.e. operating costs and not your living (or private) costs, you will be much better off! Accounting, in essence, gets a lot from a just a bit of discipline.
So, as a self-employed person, what can I spend that money on – what’s the difference between operating and living costs?
I see many people who misunderstood what this €5000 IBB freelancer grant was for, especially people who applied after April 6. Before April 6 the first €5000 was referred to as ‘liquidity’, which means it could be used, in part, to pay living costs and health insurance, as long as the bulk of it still went into operating costs. Since April 6 the criteria got stricter and the money can only be used to pay your business operating costs; which means expenses incurred by your ‘doing business’. So your commercial rent for your office or studio, but not the rent for your home. My advice is to learn about types of business expenses, so you can really optimise writing off professional expenses. You can actually find some pretty decent free videos on YouTube if you look.
So what kind of expenses can I list as ‘operating costs’, what qualifies?
Office supplies, stuff under €150; then bigger professional gear up to around €1000 – like computers, phones. Get yourself a laser printer and you won’t need to go to the copy shop ever again! Also stuff like internet, phone costs, and licenses to Adobe or Microsoft software. Advertising costs… Speaking of which, it’s a bit of a grey area, but I think an interesting argument is about what you can do to ‘corona-proof’ your business; is there something small you can use this money on to upgrade your business and move forward? For instance, a pole dancer or yoga teacher who is now out of work and started video Zoom classes could use this opportunity to invest in a proper website or to buy some gear, or even a bit of advertising to keep the contactless possibilities going.
Many come to us and say “OMG, I got €14,000, I didn’t deserve that money, what should I do with it? Should I give it back?”
Will the grants count towards total taxable income at the end of the year?
It’s not yet clear how it will be treated, but they will need to be included on the tax return. Also, when people fill out any forms for the Jobcenter, there’s an explicit question about this money, but again, it is viewed – as far as I know – to cover operating and not living costs.
When and how will I be audited?
Auditing is a scary word, but it’s just about seeing how you used the money. It might be done in the same way as people who receive grant funding for an art project, for example. They need to explain they received x amount of money, and spent it this way. The best thing is to just save every single receipt. And if you need a new computer, take a photo of your old, broken laptop. It’s not clear how they will do it, but when people filled out the forms, there was a final page where you checked a bunch of boxes, and basically agreed to be audited. I think everyone should expect to be checked. Just write everything down, even if it’s a simple Excel sheet outlining each thing that was paid for; and be prepared, which will definitely help your business no matter what.
I’m a bartender who received €14000 in total. Should I be worried?
I don’t know what to say to this. What are you going to do with that money? I’m super curious! If you’re an artist and/or can prove you live off some creative side-business you can spend the money on, then just keep strict book keeping and be prepared to justify how it was spent. My advice for people who received money and are unsure if they deserved it, is to keep it in your bank account for these six months, then give back what you didn’t use. With the German government, the best thing is to be honest. Being dishonest doesn’t help at all.
Do you meet people who aren’t sure if they deserved it?
Yes! It’s crazy. There was that hysteria in the beginning with rumours that the money would be handed out on a first come first served basis, so people rushed for it before they had time to properly thinking things through. Some also applied through online tax programs and automatically got 14K and are now totally freaking out! They come to us and say “OMG, I got €14,000, I didn’t deserve that money, what should I do with it? Should I give it back?”
Exactly! So if I realise I mistakenly applied and didn’t actually qualify, but got the money, can I actually give it back?
Technically you can, There’s an email address on their site ([email protected]) and you should write to them if that’s the case. I’d say that if you’re not sure, the sensible thing to do would be to keep it on the side, in case you need liquidity or your situation should change or deteriorate later, who knows what happens next, right? It could also be safety money for the next six months. If, by the end of October, you haven’t needed any of it, just send it back.
Will people who unjustly received grants be punished?
They’ll obviously have to pay it back. On the applications, a lot of people didn’t realise – perhaps because they don’t know German – that they signed an affidavit. If you blatantly did the wrong thing, you might get a fine.
