Whether you’re a freelance journalist, self-employed plumber, or physiotherapist, you’ll have to pay expenses to keep your business running.
The costs that you can include in your calculation are called “allowable expenses” because Revenue has clear rules about what you can and can’t include. To make things easier for you, we’ve put together a list of the expenses you can claim when filing your Self-Assessment tax return below.
When looking at your income and expenses, your profits will be the difference between your income and your expenses. Because you’ll only be taxed on your profits, the more expenses you have, the lower your tax bill will be. If you aren’t VAT registered, you can deduct the total amount spent on the expenses, including VAT.
Although capital purchases, such as a van, business premises, equipment, or fixtures/furniture, are not considered business expenses for tax purposes, you may be able to claim tax relief if they are related to your business. Capital items must be reported separately on your Self-Assessment tax return, but they will reduce your taxable income.
Keeping a record of your self-Assessment:
Maintaining up-to-date and accurate records/receipts is critical for your business. It will make completing your tax return and keeping track of your expenses much easier. You may have to pay a penalty if you do not keep adequate records or do not complete your tax return correctly/by the Revenue deadlines.
You must keep records/receipts for the following items:
- cash registers
- records of mileage
- statements from the bank
- receipts for purchases
Expenses that are allowable and to complete your 2020 tax return
For the 2020 tax year, the Self-Assessment tax deadline is October 31, 2021. Allowable expenses can help you figure out how much tax you owe, and the government has announced assistance for businesses that are having trouble paying due to the coronavirus.
Expenses that are tax-deductible:
In most cases, it will be clear whether an expense was incurred for business purposes, and a deduction will be allowed if a receipt was kept as proof of purchase.
A newly established business, on the other hand, is frequently run from home, possibly using an existing car for business travel and a previously owned mobile phone for business calls.
Because of the ‘duality of purpose’ in these costs, this can cause issues. It’s critical that you can clearly distinguish between business and personal expenses.
To make things easier, we’ve broken down these costs further.
If you drive a car for both business and pleasure, you can deduct a portion of your operating costs, such as fuel, oil, servicing, and repairs, based on the ratio of your business mileage to your total mileage.
To calculate the appropriate deduction, you must keep a log of business mileage as well as copies of all bills/receipts.
The mileage rate covers the costs of running and maintaining the vehicle e.g. fuel, oil, servicing, repairs, insurance etc
What constitutes business mileage?
If you own or rent a separate business location from your home, the cost of travel between your home and your business location is not deductible because it is considered ordinary commuting. The cost of travel between your business location and other locations where work is done is deductible.
Using your home as an office:
When a room at home is used for business purposes, the additional costs of the business use, such as light and heat, may be claimed as a deduction. This means that when a portion of the house is used for business, it is the only use for that portion of the house at that time.
So, if the part of the house used for business purposes, such as creating invoices, is also used for non-business purposes, such as watching TV, no deduction is required.
If you use a portion of your home exclusively for business for a period of time, you can deduct the costs you incurred in that area during that time.
You cannot deduct the cost of purchasing or constructing your business location. If you run your business from home, you can deduct a portion of your home utility bills, but you’ll have to figure out how much of your home is used for business and how much of the month it’s used for business.
Expenses that are not permitted:
For tax purposes, some expenses are disallowed, such as entertaining clients, even if this directly led to new business
Personal expenditure is also prohibited, so you won’t be able to claim tax relief for the following items.
Clothing for personal use
Non-work clothing (e.g., anything other than a uniform) worn for work is not deductible. Even if a professional body mandates certain dress codes, this still holds true.
Food and beverage
Food and beverage costs are not a business expense because everyone needs to eat to survive! It is still forbidden, even if the physical demands of your job require you to eat more or if the food at your workplace is more expensive.
Domestic accommodation costs are not allowable, even if it allows you to work more hours, because where you live is a personal decision. Hotel accommodations and associated costs may be deductible when a business trip requires one or more nights away from home.
WHAT’S THE NEXT STEP FOR ME TO DO?
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