Running a business is a challenge on its own. Now, throw in mounting expenses – both business and personal – and you’ve got a steep climb ahead. The good news is that you aren’t liable for all your expenses – not if you know which are tax deductible.
So, which expenses are the tax-deductible expenses in Ireland? How can you claim them? How do business costs differ from Sole Traders to Limited Companies? In this article, we’ll answer all of the above, along with tips on streamlining the tax filing process and keeping your financial records in top shape.
(Or, if you have any questions about a specific tax situation for your business, contact Outmin for quick support!)
We’ll cover the following topics:
- Examples of Business Expenses
What Are Business Expenses?
Business expenses are costs that are directly related to your business. These key costs range from daily essentials to long-term investments, and you need them to keep your business running smoothly.
For something to be considered a valid business expense, it should be tied to business purposes – whether it keeps things ticking along or helps your business grow.
The Difference Between a Business Expense and a Personal Expense
In simple terms, personal expenses are exclusively linked to your own or your family's individual needs and don’t have any connection to your business. These include:
- Housing (rent or mortgage)
- Groceries and dining out
- Clothing and personal care
- Entertainment and leisure activities
- Health and medical costs (not covered by insurance)
- Transportation (personal vehicle, public transit)
- Utilities (electricity, water, internet)
- Education (non-business related)
- Insurance for personal items (personal health insurance)
- Debt payments (credit cards, personal loans)
- Gifts and donations
- Travel for personal reasons
Generally, you wouldn’t be able to claim those as business expenses. However, the lines between “personal” and “business” tend to blur when you work from home. For example, you’ll most likely be availing of your utilities for both work and personal reasons.
And later in this article, we’ll also talk about phone, rent, power, and other potential work-from-home expenses. But first…
How to Claim a Business Expense
If you’ve been keeping accurate – and preferably electronic – records of all your business expenses (or having a dedicated accountant do it for you), the following steps should be straightforward.
Sole Traders are advised to claim deductible expenses through Form 11 by the 31st of October. However, if you use ROS to file your tax return, you are given an extension until mid-November.
Companies are required to claim deductible expenses through a CT1 Form by the 23rd day of the 9th month after the company's year-end.
Pre-Trading Expenses
If you incurred bills and expenses before your business started, you may also be eligible to claim expenses related to the cost of setting everything up, such as:
- Market research
- Legal and accounting fees for business setup
- Registration and incorporation costs
- Design and branding expenses
- Rent or lease of business premises before opening
- Initial advertising and promotional costs
- Training and courses (related to business operations)
- Purchase of initial inventory or raw materials
- Travel and accommodation for business planning purposes
- Costs associated with website development and hosting
- Equipment and tools needed for business operations
Car Expenses
Deductible car expenses apply to three types of vehicles: personal cars, company cars, and electric cars.
Personal Cars: Do you use your car for both business and personal purposes? If so, you can claim back a percentage of the personal car usage for business purposes. The deductible amount includes running costs (such as fuel and maintenance) and mileage for business-related travel (such as meetings with clients, deliveries, or visiting job sites).
You can calculate the rate per business kilometre travelled through the Revenue’s Civil Service Rates.
Company Cars: If you're using a company-owned car for business purposes, you can claim any expenses related to its running costs. However, any personal use of the company car is usually considered a benefit and might affect your deductible amount. This personal use benefit is known as the Benefit In Kind (BIK), which doesn’t apply to Sole Traders.
Electric Cars: Due to their environmental-friendliness, many regions encourage the use of electric cars for business purposes. Incentives include deductions for electric car-related expenses, such as lease or purchase costs.
Phone Expenses
Using a separate mobile line for your business may be a more practical choice if you frequently make business calls on your personal phone.
Even though you can deduct business-only calls as long as you can prove they were business calls, having separate phones for each purpose makes tracking your expenses easier.
For a business-only phone, the whole amount is deductible. You may need to track call logs and phone bills for combined use to determine the correct business percentage.
Rent and Power Expenses
If you work from home, you can also claim a portion of your rent and power bills as tax-deductible expenses.
That’s where things can get a bit complicated: the deductible amount is based on the square metres of the room (as a percentage of the total area of your home). For example, if your home office takes up 10% of your total home space, you may be able to claim 10% of your rent and power bills as business expenses. Also, you can only claim the proportion of the working day. So, if you work from home for 8 hours a day you can only claim 33% of the 10%.
However (and that’s a big however), you need to be able to support these claims by calculating your percentages correctly. Sounds overwhelming? It doesn’t have to be! You can book your consultation with the Outmin team here, and learn how we can support your business accounts.
Working from Home Expenses
Working from home expenses can be split into two categories: direct and indirect expenses.
Direct expenses are costs that are exclusively related to your home office or your designated workspace. They include:
- Office supplies (papers, pens, stationery)
- Furniture (desks, chairs)
- Equipment (computers, printers)
- Telephone landlines
- Office repairs
Indirect expenses are costs shared and divided between personal and business use based on the percentage of your home used for business. They can include:
- Rent or mortgage (but only the portion that corresponds to your home office space)
- Utilities (electricity, heating, cooling, and internet, prorated for business use)
- Home maintenance (cleaning services or general repairs within your workspace)
In the case of indirect expenses, you can only deduct the percentage corresponding to your workspace use.
How to Manage Tax-Deductible Expenses
Here are four essential tips to effectively manage your tax-deductible expenses:
Keep detailed records: Keep and organise records of all your business expenses, including receipts, invoices, and supporting documentation.
Keep separate bank accounts: Having separate bank accounts and credit cards for your business and personal transactions will simplify the expense-tracking process.
Categorise your expenses: Regularly categorise expenses into relevant categories or accounts, documenting the dates and purposes of each expense.
Use accounting software: Cut the scramble with paperwork. Digitalise! Using accounting software like Outmin’s will help you categorise your deductions, simplify expense tracking, and ensure tax compliance.
By following the above tips, you can easily back up your deductions in case the Irish Revenue requests an audit or supporting documentation. And, of course, it’ll make for a much smoother tax filing process.
Get Support with Your Business Expenses
At the end of the day, your deductible expenses will depend on very specific circumstances. Trying to figure them out for yourself is like taking on the roles of a CFO, accountant, financial controller, and bookkeeper – All at once, and all on top of your business owner hat.
That can get difficult fast. Let us help!
Outmin is an online accounting solution built for small businesses. We combine human accountants (for the expertise) with AI technology (for the efficiency), so it’s 40% more cost-effective than your accountant, twice as fast, and so low-touch that all you have to do is upload your documents and let our expert financial team take it from there.
Taxes and expenses doing your head in? Learn more about Outmin’s financial solution and get a demo today!
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