Whether you are a sole trader or an SME, knowing which Business Expenses can reduce your business tax liability in Ireland is vital. This article will give you great tips and insights to save you money. For professional accounting advice, reach out to your local financial specialists.
Get to Know the Irish Tax System
The Irish tax system is quite complicated which is why you require help from accountants sometimes to negotiate it. Under the Irish taxation system, there are certain expenses within your business which are allowable and some which aren’t.
A personal expense is different from a business expense because the company that pays for it is different. For example, I can’t deduct my apartment rent or vehicle payment if I’m on income tax. However, if I own a business then those expenses are still deductible.
As a director of a company you are allowed to claim expenses either directly from the company’s business bank account or have it reimbursed at a later stage. That is why it is important to keep a precise record any time the company reimburses you. An example might be somebody buying coffee for the office canteen. They are entitled to be reimbursed for that product because it has come out of their personal money and not out of company money.
A personal expense is one that is for an individual. These expenses generally cannot be claimed as a business expense. An example of this would be buying yourself a Starbucks coffee because you don’t like the taste of the one in the canteen. This type of expense is not reimbursable by the company.
If you run a small business, your employees can also claim expenses, so it’s good practice to have a company expense form.
Revenue (www.revenue.ie) are very clear on which expenses can be treated as ‘allowable expenses’.
These expenses can help reduce your tax liability whether undertaken as a sole trader or limited company.
As we said at the outset, Irish tax law is complicated so if you would like further advise on your specific situation contact us today for a free consultation.
When filing your tax return, you can deduct the costs of operating your business for a given period of time. However, these deductible expenses are limited to only those incurred during that time period.
What Business Expenses you can deduct from your income
Because the expenses area is so vast depending on what industry your business is in below is a broad outline of what is allowed and what is not allowed as business expenses.
Getting clear on what you can and can’t deduct
You can claim expenses for travel and meals for employees travelling to or from the workplace and in their own homes if they are now working from home since the pandemic.
If you want to claim your suit as a tax deduction, it won’t be accepted if you’re going to wear it for business purposes. However, when buying workwear of a specialist nature (e.g. diving equipment), that is considered as and tax-deductable expense.
One of the areas that has been historically abused is Client Entertainment and as a result is now one of the most closely examined by Revenue.
Client Entertainment and Social Expenses
When it comes to calculating your Corporation Tax, most of your client entertainment expenditure is disallowed. As such, you need to include the cost as an expense while preparing your accounts–but these expenses will be added back when you come time to do your taxes.
Use of your Home for Work
Since the pandemic, how working from home has been treated has changed vastly for remote workers.
As an employer you can claim extra costs you make in your workplace such as lighting, heating, internet provision and/or mobile and landline phone rental. As an employee you can also claim some expenses.
As a business owners you will need to establish the proportion of household costs used by the business. You will need to work out the percentage of your property which is used for business purposes, what proportion of a utility bill that can be apportioned to business use (e.g. lighting or heating), and for how long each day the service is used for solely business reasons.
Staff Entertainment Costs
Another area that came under the microscope due to the level of abuse. This expenses covers items such as the staff Christmas party or other general moral events within the business. Businesses can also avail of the small benefit exemption in relation to their employees. Each employee can receive up to €500 tax fee in the form of a voucher once a year and the business is allowed claim this as an allowable expenses.
Telephone and Internet Costs
If you have an exclusive broadband/mobile line for your business, the whole amount is allowable, and you will not be taxed personally.
If you make a claim for business only calls made on your personal mobile or landline phone bill, this is an allowable expense provided you can prove it was a business call. You can also reclaim the VAT element of the business calls (if you’re VAT registered), but you won’t be able to reclaim any part of the line rental, as you would incur this cost anyway.
Business Mileage Expenses:
If you’ve used your personal car or van to get to a temporary place of work and personally paid for the fuel personally, you’re entitled to get this back from your company at an agreed rate.
Additional Allowable Expenses For SMEs
1) Rent – For example, the cost of office rent or production facilities, whether they are shared or exclusive to your company; Office equipment, such as computers or printers; Telephone land lines; Office furniture, such as chairs and desks; or any other equipment used in connection with the business such as computers.
2) Office utensils – The cost of computer software and utensils as internet access, e-mail software, word processing software or database systems used by the business.
Office utensils are a necessary part of running any business. The cost of these utensils can be a significant burden on the company, especially when they make up a large amount of the budget.
3) Supplies consumed by your business – including paper products (for example envelopes), toiletries (for example soap), stationery (for example pens), cleaning products etc.
As a business owner, you know how important it is to find the right supplies at the right price. That’s why you need to expense everything from envelopes, to soap, to pens and more.
How To Claim Business Expenses in Ireland
- Sole Traders claim expenses through a Form 11. The deadline for this return is the 31st of October. If you use ROS to pay and file your return, there is an extension until mid-November. Check out our Revenue’s Guide for Assessment Revenue Guide to Assessment dates for more information.
- Companies claim expenses through a Form CT1.The deadline for this return depends on the accounting period for your company. It is due on the 23rd day of the 9th month after the company’s year-end.
Records must be stored manually or electronically but we recommend all of our clients retain the electronic version for bookkeeping purposes and to save on storing a huge amount of paper.
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If you need specific advice about what to do ahead of your tax deadline, aperio is a Cork-based outsourced accounting and consulting company that can take care of all your bookkeeping, management accounting, financial compliance, and financial project work such as grant applications.Click here to schedule a call with aperio.