Tax-deductible expenses to reduce your business tax bill

Are you a Sole Trader preparing your yearly Income Tax Return? Or are you a Limited Company getting ready to file a Corporation Tax return with Revenue or Annual Return with the Companies Registration Office (CRO)?

Throughout the year, you may incur business expenses that are tax-deductible and can be claimed to reduce the amount of tax you pay. To claim these expenses, you need to provide your accountant with bookkeeping records (check out our guide on bookkeeping for small businesses).

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.

If you need specific advice about what to do ahead of your tax deadline, talk to our Client Services team about your needs. We’re here to help.

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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 a business expense. However, you may be entitled to certain personal tax credits and expenses (check out our post on allowable expenses in Ireland as well).

How to claim a business expense?

  • 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 Income Tax Deadline guide 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. If you’re not sure when to file your Corporation Tax return, please seek support from a professional accounting firm.

Want to know more about claiming business expenses?

Join our free Startup Webinar, where Tamar Heffernan, CPA, will discuss everything you need to know about setting up a business in Ireland, including claiming back business expenses.

This is a live Q&A event so you can ask questions about your specific situation and Tamar will advise you.

Examples of tax-deductible expenses:

This is not an exhaustive list of all the business expenses you can claim at the end of the year. If you need specific advice on what does and does not qualify as a business expense, please talk to your accountant or talk to our Client Services team about our accounting services.

  • Accounting fees
  • Advertising expenses
  • Insurance costs
  • Legal and professional costs, for example, company formation costs
  • Pre-trading expenses
  • Wages, including director’s salary
  • Motor, phone, and rent
  • Protective clothing and uniform
  • Lease payments for business vehicles or machinery
  • Running costs for equipment or machinery used for the business
  • Repair and maintenance costs for business equipment
  • Interest charged on business loans
  • Marketing costs for your business

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Keeping records

It’s important that you keep good records of any business expenses incurred. Generally, businesses are required to keep records for six years.

Records can be stored manually or electronically but we recommend moving your accounts online. This will save time doing manual bookkeeping and save storage space because you don’t need to keep physical receipts and invoices.

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 (check out our post on company formation in Ireland)
  • Feasibility studies
  • Business plans
  • Rent paid for the premises from which the trade or profession operates

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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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.

Claiming 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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What about a company paying rent for your 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.

Working from home expenses

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

1) Use financial planning and online accounting tools

As an online firm, we are big believers in using online software whenever it is more convenient, practical and efficient. Using online accounting software is a huge time-saver, it can help you manage your expenses and gives you insight into your cash flow in real-time.

As a Xero accountancy firm, we recommend using Xero software. Xero is very user-friendly and there are plenty of resources online that show you how to use it if you’re a first-time user.

We run a free monthly Xero workshop, highlighting the benefits Xero can have for your business and showing you how to set up and use the software. Register now to find out if Xero could help your business.

2) Stay on top of deadlines

This includes staying on top of your Revenue and Companies Registration Office (CRO) deadlines to ensure you’re not fined or penalised. Paying heavy fines and penalties could negatively impact your business.

If you have an accountant, they should look after your deadlines but it is important that you keep a note of them too, so you’re aware of your obligations. Check out our post on Working With an Accountant for more information.

3) Review your expenses regularly

Another tip is to shop around for the best service provider.

For instance, can you benefit from a switcher discount if you move the phone or internet supplier? Is there a cheaper insurance provider or accounting firm you can outsource to? Should you consider outsourcing your payroll or bookkeeping team to avoid paying salaries?

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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Our client services team are always happy to talk to you about what's best for your needs

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