Allowable Expenses and Insurance Income for a sole Trader

Peach12

I just have two questions regarding accounts for a relations business.

1. As owner of the business (Hairdressers) and as she lives approx 10 miles away she needs to pay for parking near the business - approx 8-10 euro per day. Are these parking ticket payments allowable as a tax deductable expense. To me they are "wholly and exclusively" as the guidance requires in the sense that where it not for running the business these expenses would not arise and in order to make profits the owner needs to be present and in order to be present parking fees need to be paid. Is this logical? Any advice would be great.

2. Same business as above suffered small flood damage in the period gone as a result of a leak from an upstairs premises. The insurance company paid out 4,000 which was the cost of damaged stock, damage to lighting, floor, wall. The 4,000 was used to replace the damaged stock and repair the damage caused. Is the 4,000 taxable as income seen as it was all spent on its intended purpose?

Many thanks and KInd Regards in advance.

viztopia

Peach12 wrote: »

I just have two questions regarding accounts for a relations business.

1. As owner of the business (Hairdressers) and as she lives approx 10 miles away she needs to pay for parking near the business - approx 8-10 euro per day. Are these parking ticket payments allowable as a tax deductable expense. To me they are "wholly and exclusively" as the guidance requires in the sense that where it not for running the business these expenses would not arise and in order to make profits the owner needs to be present and in order to be present parking fees need to be paid. Is this logical? Any advice would be great.

2. Same business as above suffered small flood damage in the period gone as a result of a leak from an upstairs premises. The insurance company paid out 4,000 which was the cost of damaged stock, damage to lighting, floor, wall. The 4,000 was used to replace the damaged stock and repair the damage caused. Is the 4,000 taxable as income seen as it was all spent on its intended purpose?

Many thanks and KInd Regards in advance.

In relation to the insurance, the insurance receipt will cancel out the cost of replacement. Basically this means that you will be taxable on the insurance receipt but you can claim a deduction for the replacement cost so it will be tax neutral. Does this make sense?

In relation to the car park charge, in my opinion it would be allowable but I would.not be surprised if someone said it wasn't.

viztopia

Peach12 wrote: »

I just have two questions regarding accounts for a relations business.

1. As owner of the business (Hairdressers) and as she lives approx 10 miles away she needs to pay for parking near the business - approx 8-10 euro per day. Are these parking ticket payments allowable as a tax deductable expense. To me they are "wholly and exclusively" as the guidance requires in the sense that where it not for running the business these expenses would not arise and in order to make profits the owner needs to be present and in order to be present parking fees need to be paid. Is this logical? Any advice would be great.

2. Same business as above suffered small flood damage in the period gone as a result of a leak from an upstairs premises. The insurance company paid out 4,000 which was the cost of damaged stock, damage to lighting, floor, wall. The 4,000 was used to replace the damaged stock and repair the damage caused. Is the 4,000 taxable as income seen as it was all spent on its intended purpose?

Many thanks and KInd Regards in advance.

In relation to the insurance, the insurance receipt will cancel out the cost of replacement. Basically this means that you will be taxable on the insurance receipt but you can claim a deduction for the replacement cost so it will be tax neutral. Does this make sense?

In relation to the car park charge, in my opinion it would be allowable but I would.not be surprised if someone said it wasn't.

smeharg

Costs of travel to/from place of work is disallowed. In my opinion parking fees are part of the cost of travelling to/from work.

The cost needs to be wholly and exclusively incurred in the course or furtherence of business. This is different from "wouldn't be in incurred" if the business wasn't carried on.

The cost is incurred due to a need to park the car because you have driven to your place of work. It hasn't arisen exclusively as a result of running the business.

RMTaxation

smeharg wrote: »

Costs of travel to/from place of work is disallowed.

Correct.
This based on same reasoning that parking spaces are charged as a BIK in your payslip i.e. they are not classified as an allowable expense

viztopia wrote: »

In relation to the insurance, the insurance receipt will cancel out the cost of replacement. Basically this means that you will be taxable on the insurance receipt but you can claim a deduction for the replacement cost so it will be tax neutral. Does this make sense?

Insurance proceeds are taxable.
Any assets that are destroyed/disposed of should have capital allowances balancing allowance claimed on them.
Any new assets acquired should be included in capital allowances.
Repairs/maintenance type expense are allowable expenses

rockat man

Smeharg, I think you're being a bit hard on the op here. The hairdresser is a sole trader not an employee. In my opinion, the parking expenses should be allowed along with any motoring expenses and a proportion disallowed for personal use of the motor expenses. The rule about travelling to work from home only applies to employees when claiming mileage rates. If that was the case, the hairdresser would not be allowed claim any motoring expenses either as you would argue it is not "wholly and exclusively" for the business as the op could bike or walk to work.

dbran

Hi

Its not a case of being hard on a taxpayer. It is a case of applying the rules.

The incurring of parking expense is as a result of the personal choice of the business owner to drive to work, where they choose to live and where they set up their business. It is not incurred in order to perform the service of cutting hair. Therefore it is not allowable as a deduction.

The reasoning behind this is based on tax law and not just to be consistant with PAYE employment.There is no distinction whether you are an employee or a sole trader. The same rule applies equally to both.

In practical terms however you would need to make a reasonable apportionment of the motor expenses which are allowable for business purposes and not allowable as personal. The journey from home to office would be personal and not allowable and the journey to pick up product and materials would be businees related and allowable.

Kind Regards

dbran

rockat man

Dbran, well I think it is. The rule for claiming business expenses is that the expense must be incurred "wholly and exculsively" for the business. It depends on what way you read it but in my opinion the parking expense is "wholly and exclusive" for the business, the op does not receive any personal benefit from paying the parking expense? My advice is that the op should check with their accountant and I hope they have a good one as some of the posters here are what I would call "tax man accountants" where they err on the side of Revenue!

rockat man

To backup my previous post, please see below as taken from the Revenue website: http://www.revenue.ie/en/business/running/allowable-expenses.html


Allowable Expenses

• What expenses can I claim for?
• What expenses can’t I claim for?
• What about expenses which are partly for business and partly private?

What expenses can I claim for?

You can claim for any business expenses which you have incurred in order to earn your profits. These expenses are normally referred to as revenue expenditure.

Revenue expenditure is your day to day running costs and covers such items as:

• Purchase of goods for resale
• Wages, rent, rates, repairs, lighting and heating etc.
• Running costs of vehicles or machinery used in the business
• Accountancy fees
• Interest paid on any monies borrowed to finance business expenses/items
• Lease payments on vehicles or machinery used in the business

If you are registered for VAT the expenses you claim should be exclusive of VAT.
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What expenses can’t I claim for?


The general rule is that you cannot claim for any private expenses i.e.

• Any expense, not wholly and exclusively paid for the purposes of the trade or profession
• Any private or domestic expenditure e.g. your own wages, food, clothing (except protective clothing), income tax etc.
• Business entertainment expenditure i.e. the provision of accommodation, food, drink or any other form of hospitality.

You cannot deduct capital expenditure in calculating your taxable profits, however you can claim what are known as capital allowances on certain expenditure.
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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.
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Again, to clarify, the op is a sole trader, not an employee. Employees cannot claim mileage for travel from home to work expenses but the op is a sole trader. In the section on "What expenses can't I claim for" above, it makes reference to private expenses. An example of this would be where a sole trader pays for a meal out for him and his extended family of 20 and claims this as a business expense. This is clearly NOT a business expense as there is no benefit to the business but the parking is not a private expense, it is an expense incurred "wholly and exclusively" for the business.

dbran

rockat man wrote: »

My advice is that the op should check with their accountant and I hope they have a good one as some of the posters here are what I would call "tax man accountants" where they err on the side of Revenue!

We keep our clients out of trouble rather then getting them involved in arguments that they are unlikely to win.;)

rockat man

that's fine just as long as your clients are not paying too much tax!

I like a good argument myself

dbran

No Problem.

For the record, the case that sets out the principle that travel from Home to office is not allowable as a deduction and does not meet the criteria of wholly and exclusively for a sole trader is Newsom v Robertson [1952] 33TC452

In that case there was a Barrister (sole trader) who was unable to claim a deduction for the cost of traveling from home to his chambers. Although this is a UK case it would be persuasive here.

Details are here http://www.hmrc.gov.uk/manuals/bimmanual/bim37605.htm

Regards

dbran