Claiming expenses as a Sole Trader - An interesting point of view

daigo75

Hi all,
I know that the topic of expenses is like a meatloaf (it comes back again and again), but I had an interesting chat with a friend of mine about it.

As I understood, the rule to claim expenses as a Sole Trader is that they must have been incurred to run the business. As Revenue puts it, "You can claim for any business expenses which you have incurred in order to earn your profits". Typical example of non-allowable expense is food as, they say, one would eat anyway and it has nothing to do with the business.

However, here's an interesting idea: Sole Traders should claim crèche or afterschool costs, because, following the above rule, they qualify. If one has a very young child, he/she can't possibly run a business while minding him/her all the time. Therefore, one has to avail of crèche services to run the business and to earn their profit, which makes it a legitimate expense. Unlike the food, one would not send the child to a crèche if he/she was not working.

I might be missing something important in my logic, but I'd like to get someone else's opinion.

TheInquisitor

They would be expecting you to be working in another job if not as a sole trader. Sorry its a good idea but it wouldn't work.

Gloomtastic!

Now they tell me. I paid creche fees for six years! :mad:

I think if it was allowable the creches would be shouting it from the rooftops to get more business in.

daigo75

TheInquisitor wrote: »

They would be expecting you to be working in another job if not as a sole trader. Sorry its a good idea but it wouldn't work.

I guessed so, but my idea still makes sense: if I were working as an employee I could not claim any expense at all. So they should tell me not to claim anything as a sole trader either, since "you would pay those costs anyway" (for example electricity, heating and Internet when working from home).

Besides, the assumption that everybody would be working and sending their children to the crèche is ridiculous at best. They can't expect to create rules based on "if" statements: "if you were not self-employed, or if you didn't have children, you would not have this cost".
As my grandpa used to say: "if I had three balls I would have been a pinball, but that's not the case".

barneystinson

Ah come on now, you're having a laugh, surely! By the same logic, anyone who works in a PAYE employment would also be entitled to the same deduction. The reasoning is no different than the reason the cost of eating, or of clothing yourself (unless the job requires specialised clothing/uniform), or of getting to & from your normal place of work/business are not allowable. These are all private domestic expenses - you have to eat, you have to clothe yourself, where you live is up to you, and how you arrange for the care of your children is up to you.

Anyway the legislation is very clear on it, the Notes for Guidance to the Taxes Consolidation Act are very clear (http://www.revenue.ie/en/practitioner/law/notes-for-guidance/tca/part04.pdf Section 81):

Non deductible amounts
In computing the income of a trade or profession for tax purposes, no sum is allowed to be deducted for –
• any sum not wholly and exclusively laid out for the purposes of a trade or profession,
• any sum expended for a private or domestic purpose,

daigo75

barneystinson wrote: »

Anyway the legislation is very clear on it, the Notes for Guidance to the Taxes Consolidation Act are very clear (http://www.revenue.ie/en/practitioner/law/notes-for-guidance/tca/part04.pdf Section 81):

Non deductible amounts
In computing the income of a trade or profession for tax purposes, no sum is allowed to be deducted for –
• any sum not wholly and exclusively laid out for the purposes of a trade or profession,
• any sum expended for a private or domestic purpose,

If that's the case, it brings me back to the point that, in such case, domestic expenses such as rent, or Internet connection, should be deductible, in any percentage, by people who work from home. Rent doesn't increase if you work from home, you'd pay it anyway; same for Internet connection.

Going back to the original topic, the whole discussion with my friend started because he and his wife had a second child and that will force one of them to quit the job.
They are both earning less than 2500/month after tax, and the crèche would cost them over 2000/month for two children. Going to work full time to bring home a few hundreds doesn't make any sense, that's why we were wondering why such cost can't be deducted. Anyway, I got the point.

barneystinson

daigo75 wrote: »

If that's the case, it brings me back to the point that, in such case, domestic expenses such as rent, or Internet connection, should be deductible, in any percentage, by people who work from home. Rent doesn't increase if you work from home, you'd pay it anyway; same for Internet connection.

I presume you meant shouldn't be deductible.

It's funny you should mention rent, as the very next line from the passage I quoted specifies "the rent of any dwelling house or other domestic premises except such part as is used for the purposes of a trade or profession".

Anyway I'm not sure if you made it to the end of the page on the Revenue website that you referenced in your OP, where it takes the very simplified and general statement that you've based your position on, and makes a fairly specific clarification:

"What about expenses which are partly for business and partly private?
Where expenditure relates to both business and private use, only that part which relates to your business will be allowed. Examples of such expenditure are rent, electricity, telephone charges etc., where the premises involved is used partly for business and partly for private purposes. These expenses will need to be apportioned to exclude the private use"

It is also important to realise that the information guides on the Revenue website are not definitive, and are not the law...

IRE60

And to bring it to its full conclusion.

If you didn't eat - you wouldn't be able to run a business and turn a profit, but, alas, food is not deductible.

PCPhoto

IRE60 wrote: »

And to bring it to its full conclusion.

If you didn't eat - you wouldn't be able to run a business and turn a profit, but, alas, food is not deductible.

Lunch is allowable in some cases !

I have a lunch allowance of €15 per day.... out of office expense, as I do not work at my office for in excess of 8hrs a day and work on location I am allowed it....so my accountant tells me.

and I qualify for €200 a year clothing allowance - obviously for work related clothes, but I need a jacket to protect me from rain/wind/snow ...which can be taken as work related or I need a jacket specifically designed for my work.

barneystinson

PCPhoto wrote: »

Lunch is allowable in some cases !

I have a lunch allowance of €15 per day.... out of office expense, as I do not work at my office for in excess of 8hrs a day and work on location I am allowed it....so my accountant tells me.

and I qualify for €200 a year clothing allowance - obviously for work related clothes, but I need a jacket to protect me from rain/wind/snow ...which can be taken as work related or I need a jacket specifically designed for my work.

Are you trading as a sole trader or through a Ltd Co. though?