Sole Trader Expenses – What Is Allowable?
In the previous article we looked at motor and travel, food and drink and what is not allowable as a business expense of a sole trader. Clarifying in your mind travelling ‘to’ work and travelling ‘for’ work and knowing one is allowable and one is not. Also ensuring you are aware Revenue does not allow for food or drink expenses (even where you are taking clients or prospective clients for a coffee) except in very rare circumstances.
See here for the article.
Today we’ll look at what you CAN claim. Ensuring you claim everything that is allowed as a business expense. We’ll look at pre-trading expenses (what you spend before you are set up), your trading expenses and knowing a few more rules that will apply to sole traders.
Knowing what you can and can’t claim ensures you never have to worry if you have a Revenue audit. It means you ensure you don’t listen to hearsay and you know the facts. Stay informed and protect yourself. The tax bill will be yours, so by knowing some rules, you are looking after yourself. Most importantly, you know what your profit level is, what tax you should put by and what is YOURS at the end of the day!
If you haven’t started your business yet, but have incurred some costs, have a read of this short manual. There are expenses you can claim when you’re preparing your first return however, also be aware of the various expenses that won’t be allowable as you trade (so do read last weeks article too).
All expenses directly related to the cost of your business are allowable. When clients ask questions about certain expenses, it’s usually because they know that the expense isn’t fully for the business.
Therefore, always ask yourself the question – ‘Is this 100% for the purpose of my business?’ If you answer ‘No’, then you know what to do. There may be instances where a portion of the expense is related to the business, you include the portion related to the business only as your expense.
Again, Revenue have clear guidance and notes on their website which are very helpful – see here.
There’s often a question of clothing, unless it’s protective clothing, then I’m afraid it’s most likely not allowable. Details on uniforms are here.
WHAT ELSE TO WATCH FOR?
If you own your home and work from there and claim some home expenses as business expenses, you may be bringing your one TAX FREE asset into the tax net if you sell it. Your home is known as your principal private residence from a Revenue perspective and if you sell it and make a profit, it can be tax free. HOWEVER, if you are working from home and put business expenses through your tax return, then a portion of your home may be subject to tax when you sell it.
If you are renting accommodation you work from, obviously this will be different. Claiming some expenses will not impact as you move from that property.
You will often see on your tax return a percentage add-back for some expenses. It’s up to you to determine (and let your accountant know) the percentage add-back that is appropriate to your business expenses.
Your business will change year on year and it’s most likely going to impact these percentages.
Penalties Revenue can apply are shocking at times. For example, if you don’t register as an accountable person, the penalty is €4,000. They appear to like the round sum numbers like this for the penalties – have a look here for other perhaps surprising penalties they can apply at this rate!
[For employees or companies, they will be dealt with in separate articles as they are treated differently from a Revenue point of view. Be wary if taking ‘friendly’ advice as the person you are talking to may not have full facts, or their business circumstances may be very different from yours. Always take professional advice on your own circumstances.]
If you have any queries, contact your accountant or Revenue to clarify matters. Ensure you get advice in writing where you are concerned.
Have a wonderful week
[4 March 2019]