Three separate obligations apply. Income tax on business profit, calculated after recognised expenses. National Insurance and health contributions, paid on the same profit but under their own rules and ceilings. And VAT, if registered as an Osek Murshe — collected from clients and remitted, with input VAT offset against it.
The most common source of confusion is treating these as a single bill. They are separate systems with separate rules, separate reporting cycles and separate authorities. Income tax and National Insurance both attach to business profit but calculate it differently, so the same year can produce different figures for each.
The self-employed generally pay in advance through the year, against a final reconciliation in the annual return. Those advances are based on prior-year figures, which means a year where income changes sharply — up or down — can leave the advances badly calibrated. It is worth reviewing them mid-year rather than discovering the gap at filing.
VAT only arises for those registered as an Osek Murshe. It is collected from clients and remitted periodically, with VAT on business purchases offset against it. It passes through the business rather than resting on it.
Recognised expenses and clean documentation. Two businesses with identical turnover can end the year very differently depending on whether legitimate expenses were properly recorded and evidenced during the year, rather than reconstructed afterwards.
A portion of it is recognised, under specific rules. It is one of several interactions between the two systems that is easy to miss.
Both sources are reported, and the combination affects the calculation in both systems. Coordination between them matters and is often handled incorrectly.
Yes. Reporting obligations do not depend on profitability, and a properly reported loss may carry value in later years.
Income tax on business profit, National Insurance and health contributions, and VAT if registered as osek murshe. Most self-employed people pay periodic advances during the year and file an annual return. An accountant in Israel sets up the advances so that the year-end balance does not come as a surprise.