The basics of small business expenses in Ireland
UNLESS you’re lucky enough to enjoy a relaxed corporate expensing regime, identifying what is an allowable business expense can be tricksy. Sole-trader expenses or freelancer expenses are a particularly knotty obstacle since many self-employed people will be doing their own tax return for the Revenue without an accountant or a tax expert.
For small business, this can be a uniquely joyless exercise. This leaves many leaving filing until the last minute and frantically combing through sheaves of receipts the night before tax filing deadline. Of course everyone knows the Goodie-two-shoes with everything done months in advance but, frankly, we’ve always deeply distrusted the kinds of people who brag about their taxes. And, yes, that does make us feel better about ourselves.
While there are broad categories of what qualify as business expenses, there are some exceptions within those categories which can derail even the most judiciously calculated tax return and mean you’re off base with your tax liability. As businesses on tight cashflow, the pain of even a minor miscalculation is magnified. A miscalculation isn’t just annoying and potentially expensive, but runs the risk of an audit. In a dead heat between an audit and a root canal with no anaesthesia, it’s the dentist for me. Any day.
Irish tax law
Irish tax law follows UK tax law and indeed many of the cases are UK cases. There are some areas where the tax law in Ireland differs so it’s worth getting to grips with legislation. “Ooh — taxation legislation, you shouldn’t have,” I hear you cry. I know. It’s all give, give, give.
For example, the Irish tax year runs from January 1 to December 30, unlike the British tax year, which runs April to April.
So, what business expenses can you submit in your tax return?
Expenses are the financial cost of doing business, charges incurred in creating a product or running a service company. So total income, minus expenses equal taxable income.
But what is — and what isn’t — a business expense? In this piece, we’re going to focus on current rather than capital expenditure (we’ll get to that in another post). In other words, running costs rather than company-owned items, think train tickets vs office chairs. And in all cases cited here, Revenue requires vouched expenses, in other words, receipts.
Note to you lot at the back — this should not need stating. The tax inspector is not the one to try your best ‘the dog ate my receipts’ line on. Get one of the many expensing apps and scan those tiny, annoying fuckers. Receipts = money. They’re like magic. You can turn those little shits into whatever you want. I turn mine into shoes. Except if my partner is reading in which case I turn them into electricity bills and grocery shopping and other sensible things that I definitely did not buy in the sale.
What can you expense for? What are legitimate food, travel and accommodation receipts?
The principles underpinning taxation legislation help to simplify this question.
The key phrase is ‘wholly and exclusively laid out or expended for the purposes of the trade or profession’. The second phrase to remember is: ‘humans eat to live, they do not eat to work’.
This means that everyone eats. You eat whether you’re at home or at work. The taxpayer, therefore, ain’t subbing your lunch money. I know some people operate a maxim that the more spenny the lunch, the more legitimate the expense. Sadly, also not true. Your Vinho Verde that cost you E15 is no better than my E2 Coke Zero. Soz.
This only changes if you’re doing actual work, not gossiping or standard-issue shop talk. The example from case law is where a firm got paid.
Case law cites an example of a business meeting at lunch. The clients had lunch with their lawyers, the lawyers dispensed and bill for their advice. The firm paid for lunch. The court’s finding was:
“If, in truth, the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act.”
Maybe a good rule of thumb for, Can I expense this is: Did we make any actual money?
Can I expense business trips?
Everyone loves a lig. I mean, a business trip.
Business trips for meetings and conferences are allowable business expenses. There are some complications relating to whether or not there is ‘personal motivation’ for the trip.
Where an employee extends a business trip for personal reasons then the flight is still a legitimate expense. The hotel is a legitimate expense for the duration of the conference. But only for the days of the conference, not for the week after when you decided to sample some of the local sangria and top up your tan.
Are hotels are legitimate business expense in Ireland?
Yes. Is the expense legit? Then hell yes. Again, not in the case where you’re staying on for a bit of personal RnR and putting in some quality time at the spa.
Is hotel food a business expense?
You ask a lot of questions. I HAVE A SPA TO GET TO! Lemme see. Here’s what the Revenue says:
‘Where a hotel bill for a business trip includes “reasonable amounts for both overnight accommodation and food then these two amounts should not be disaggregated. If the accommodation is allowable then so too is the food.’
Can I expense my journey to and from the office?
The basic principle here is that you don’t get money back for travelling to work and travelling home. You live at home. Therefore this is an expense incurred in the normal course of life. Getting to and from the office is a requirement of you living somewhere, rather than you working somewhere.
There is more leeway where ‘itinerant’ traders are concerned. They may use their home as their base of operations and therefore return home to look for more work. However, this doesn’t necessarily follow — what matters is that the purpose of the journey was ‘wholly and exclusively’ for work.
Can you expense for clothes bought for work?
A court case in 1983 examined this subject. A lawyer claimed for clothes bought for court as her existing clothes were not suitable. One might reasonably imagine this would be an allowed expense. But no, because she had to wear the clothes for the preservation of her own decency. The adjudication was that while the intention was to wear the correct clothes, the ‘subconscious’ motive was something else and the taxpayer should not have to bear that cost.
I know, that one burns.