Builders’ and tradesmen’s services - No tax relief in the event of an unsolicited prepayment
The Düsseldorf tax court recently decided that builders’ and tradesmen’s services would not be subject to favourable tax treatment if they were paid for in advance when no payment had yet been requested. This would apply, in particular, if the prepayment is made in the assessment period before the work is actually carried out.
Generally, taxpayers who use builders’ and tradesmen’s services are able to obtain tax relief of 20% on the labour costs that are charged, up to a maximum however of €1,200 per year (Section 35a(3) of the Income Tax Act [Einkommenssteuergesetz, EStG]). The tax relief can only be applied if the taxpayer receives an invoice and the payment is made into the account of the provider of the builders’ and tradesmen’s services. On that point, the Düsseldorf tax court decided on 18.7.2024 (case reference: 14 K 1966/23 E) that an unsolicited prepayment that the ordering party communicated via e-mail did not comply with the specifications under Section 35a(5) sentence 3 EStG as regards the requirement to be in possession of an invoice. In the case in question, towards the end of 2022, a married couple transferred an amount in part payment without having been requested to do so by the building services company. The building services were however not provided until 2023 and were only then invoiced.
