Claiming a tax deduction for business expenses

Throughout the year, you may incur business expenses that are tax-deductible and can be claimed to reduce the amount of tax you pay. In this guide, we will explain the different types of tax-deductible expenses, how to calculate motor expenses, and provide tips on how to manage your business expenses to make bookkeeping and tax returns more efficient.

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Examples of tax-deductible expenses

  • Accounting fees
  • Advertising expenses
  • Legal and professional costs, for example, company formation costs
  • Pre-trading expenses
  • Wages, including director’s salary
  • Protective clothing and uniform
  • Running costs for equipment or machinery used for the business

Difference between a business expense and personal expense

  • Business expense. An expense that is directly related to the running of your business. The expense is “wholly and exclusively for the purpose of your trade”. In other words, you would not incur this expense if you didn’t have a business.
  • Personal expense. An expense that is for an individual. These expenses generally cannot be claimed as business expenses. However, you may be entitled to certain expenses to minimise personal tax liability.

How to claim a business expense

  • Sole Traders claim expenses through a Form 11. The deadline for this return is the 31st of October each year but if you use ROS to pay and file your return, there is an extension until mid-November. When you or your accountant are completing your tax return, business-related expenses are calculated and used to reduce the amount of tax you pay.
  • Companies claim expenses through a Form CT1. The deadline for this return depends on the accounting period for your company and you should seek advice from a professional accountant if you need support. Your accountant will go through the expenses and calculate the total amount of expenses incurred.

What to do if you paid for a business expense through your personal account?

Sometimes you might forget your business card or take your personal car on a business trip. If this happens to you, you need to keep a record of each time you have a cash transaction from your personal account.

Usually, a bank statement from your personal account won’t suffice, so we recommend using a claim form template that shows how much you spent, and the date. You should also keep a digital copy of the receipt.

We always suggest talking to an accountant for advice on claiming expenses, if you’re unsure. To talk to us about your personal situation, reach out to a member of our team today.

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Frequently Asked Questions

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What are pre-trading expenses?

Business owners can claim a tax deduction for the expenses incurred over the three-year period before the business was set up.

However, it’s important that you’re able to prove that these expenses were bought for the purpose of the business. For instance, if you bought an expensive laptop three years before your business was set up, it may be hard to justify that it was a business expense.

Examples of pre-trading or set up expenses

  • Accounting and company formation fees
  • Feasibility studies
  • Business plans

How to calculate motor expenses?

Motor vehicles, whether purchased through the company or not, are often used for both business and personal use. The amount that is used for business must be reported correctly and accurately to Revenue when filing your tax return.

1) Personal car used for business travel

Employees/directors using their personal vehicle for business travel can claim back a rate per business kilometre travelled. These rates are set out by Revenue and they’re called Civil Service Rates.

The rate will depend on the total kilometres driven and the engine size of the vehicle. The amount spent on business travel can then be claimed against your tax bill at the end of the year.

It’s important to note that Sole Traders cannot avail of this.

2) Company car used for personal travel

If you avail of a company car and the company pays for all running expenses of that vehicle, you may be liable for Benefit In Kind (BIK) if you use the company vehicle for personal reasons.

BIK is a tax on the personal benefit or personal use of something that has been provided by the company. Also known as notional pay, fringe benefits or perks. BIK taxes include PAYE, PRSI and USC and the rate depends on the original market value of the car.

For example, if you use a company car for personal travel in the evenings to a value up to €500 per month; you are liable to pay BIK (PAYE, PRSI and USC) on that €500.

3) Electric cars

Revenue guidelines state that there is no BIK applied to any private use of an electric company car or van that’s original market value is worth less than €50,000. This applies to both new and used electric cars but does not apply to hybrid engine cars.

As you can see, calculating motor expenses can be complex. We recommend speaking to an accountant who can take care of these calculations for you. Get in touch with our expert Client Services team to discuss your accounting requirements.

Can I claim a phone bill?

If you have a phone in your home office or a company mobile that you occasionally use for personal reasons, you may be entitled to claim the entire cost as a tax-deductible expense. Check our post on claiming home office expenses for more information.

This is if you purchase a phone with an unlimited usage plan, and your personal use does not incur any additional costs.

If you use your personal phone for business reasons, you could claim a percentage of your personal phone bill as a business expense. However, this must be a reasonable amount and proper records should be maintained and showing the business use.

If you’re unsure what to do, talk to your accountant or seek professional advice. We can help you determine how much you can claim as a business expense to reduce your tax bill.

Should I claim rent as a business expense?

Rent is a tax-deductible expense if you rent an office space or building.

Home rent is necessary for personal use and therefore, generally not a business expense. In other words, you would still need to pay home rent if your business didn’t exist.

However, if you move home to make space for a home office, then an increase in rent can sometimes be justified as a business expense. Speak to your accountant if you need guidance in this area.

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Can I claim rent for a home office?

If you own your home and your company is occupying your home office for business reasons, it is generally advised not to claim rent as a business expense.

This could incur personal tax implications and you may also have to pay Capital Gains Tax (CGT) when selling your property.

On the other hand, everyone’s situation may be different. Speaking to a professional advisor will ensure you’re making the right business decisions. If you need help in this area, talk to our Client Services team about your needs. We’re here to help.

What working from home expenses can I claim?

Tax relief can be claimed on expenses incurred while working from home, like light and heat, telephone and internet. This is different from receiving a tax deduction because the payment can be made directly into your bank account by your employer, or you can claim tax relief at the end of the year.

Sole Traders are not eligible to claim this expense, but it is useful to know in case you decide to change from Sole Trader to Limited Company in the future. On the other hand, if you are an employer (including a Sole Trader employer) you may decide to make this payment to your employees.

How to get e-working allowance

1) Your employer pays you an allowance

If you are an employer, you can choose to pay your employees an e-working allowance of up to €3.20 per day. This payment is not subject to PRSI or USC charges. However, any e-working payments above €3.20 are subject to PRSI and USC deductions, as normal.

2) You claim tax relief at the end of the year

If your employer doesn’t make this payment to you, you can get your money back from the taxes you paid. The refund is based on how many days you worked from home, the cost of the expenses and Revenue’s agreed rate for calculating the cost of running a home office.

If you need help making an e-Working calculation for a claim, contact your Payroll Team or speak to our Client Services teamabout our accounting and payroll services.

3 tips for managing your business expenses

01.

Use online accounting software

Using online accounting software is a huge time-saver. It can help you to manage your expenses and gives you insight into your cash flow in real-time.
02.

Stay on top of deadlines

Missing statutory deadlines could mean that you need to pay fines and penalties. These expenses are avoidable. Outsourcing to an accountant can help you to take care of deadlines.
03.

Review your expenses regularly

Reviewing your costs regularly and using real-time cash flow reports, such as Xero, will help you to stay in control of your finances and help you to cut waste.

Talk to us if you want more information

Business expenses can be claimed as long as they are wholly and exclusively for the purpose of your business.

There are many different types of business expenses and there are guidelines in place if there is incidental personal use.

Sole Traders claim expenses through a Form 11 and companies claim expenses through a Form CT1.

If you need help ahead of your tax deadline, seek professional assistance. Talk to our Client Services team about your needs. We can recommend the most suitable services for your business and industry.

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