One bank account when self-employed - how big of an issue is it?

nacho66

I'm self employed and have my pps number registered for VAT. Since January 2012 (when I started self-employment) I've been working only with two companies to which I sent invoices and received regular payments. Although these transactions are clearly documented, the problem is I've been getting those payments into my private account as I never setup a business one. By private I mean the one and only account that I use on a daily basis

I have a separate account which I use to transfer tax amounts to so for example if I get paid 3000e + VAT, I transfer VAT and about 1k (30%) of the amount to cover income tax, USC, PRSI etc. I don't use it for anything else.

So my question (and concern at the same time) is how big troubles I could get into if I ever have an audit of that private account (which in fact is used for business to). I mean, apart from invoice payments, which are clearly documented, I've never done any freelance work that I was paid in cash or without receipts/invoices so I'm not afraid revenue discovers some untaxed payments, cause there's none. I have however on the record loads of private incoming transactions eg. from my wife, friends (eg. I lent money or paid for food in a restaurant by cash and they transferred money back to my account). My concern is when revenue looks at the account, would they treat any incoming transaction as income regardless of it's source thus ordering me to pay tax for it?

Following an advice I got few days ago I will create separate business account (will probably close my current accounts and move to other bank which I planned for a long time now, so would start a new with two separate and clean accounts) but the history is done already on my private account and not sure what to expect if I ever get an audit (not even sure how often this happens for self-employed people)

nompere

This is copied from http://www.revenue.ie/en/about/custservice/customer-charter.html

Presumption of Honesty

You can expect:
to be treated as honest in your dealings with Revenue unless there is clear reason to believe otherwise and subject to Revenue's responsibility for ensuring compliance with tax and customs law.

We expect you:
to deal in an honest way with Revenue by returning the tax and duty which you are due to pay and seeking only those entitlements and credits to which you are due.


If a taxpayer gets audited, and deals openly with Revenue, and proffers plausible explanations for credits to his bank account, then that's likely to be the end of it.

srsly78

Just use a second personal account for business-related stuff. Don't open a "business account" or you will pay even more fees.

As above the taxman doesn't mind so long as you are honest and everything is accounted for correctly. The thing is mixing business/personal makes it harder to do the accounting.

nacho66

Hi

Thanks for replies.

Since I'm a web developer and often work from home, I'm adding deducting a percentage of VAT from electricity and broadband bills. Same for mobile phone and car, which I use to drive to office or meetings. I'm not sure how this should be handled when I have a separate business account. It's easy enough to ask my clients to transfer payments to my 'business' account, but I can't do the same with costs. Not only because there's a hassle of transferring all direct debits to a new account but mainly because they are being deducted only partially. Additionally, car fuel is often bought by my wife, who also uses same car.

Is the suggestion to switch direct debits for media bills to 'business' account? And also get a new debit and credit cards attached to that account and don't 'let' my wife buy fuel with her own card? I mean, I'm not going to do that anyway since you both confirm revenue will appreciate detailed and truthful explanation, but in an ideal situation where I keep business and private accounts separate, how should this be handled/managed?

srsly78

Are you registered for VAT? If not then you should not be deducting it.

Usually you would pay the bills yourself, but then reimburse yourself whatever portion is allowable. The tricky part is establishing exactly how much is allowable for business purposes. If you are renting it's pretty simple, if you are the home owner it's more complicated.

Your personal car cannot be expensed 100%, this is also complicated.

Sort out an accountant now, otherwise you will just be storing up trouble for the future (fines if you expense too much, inefficiency if you expense too little). From what you have said pretty much everything you are doing seems wrong and will get you fined.

nacho66

I am VAT registered and I have an accountant. I rent apartment from which I often work. My accountant deducts media and car expenses accordingly to it's use so it's a smaller percent, I think around 25% or close to that. There's very little money returned from it to be honest, almost doesn't make sense to do it considering accountant doesn't work for free

When it comes to my income this is also quite simple as I only do work for one company at the moment and get regular invoice payments so it's child easy to show and prove business income even if I share private and 'business' account. So in terms of what first two posters said in this thread, I should be fine as everything on the account is provable and explainable.

My last question however, if you read it carefully, was about the bills and expenses that would normally be paid from my private account. Bills that only percentage of is a business expense that I deduct VAT from. I can create new account and get invoices paid to that new account (let's call it business account) but I can't really move direct debits and other expenses to be paid from that new 'business' account, can I? And that's what I am asking about. How do you normally handle bills and expenses while having separate private and business account?

srsly78

You did not say whether you are a sole trader or a company.

The bank account things doesn't really matter if it's so simple, it just makes life easier to have a proper seperation. Well, it makes the accountants life easier... so you may not even care! You pay money for the accountant so why not direct all your questions to them? If they do not facilitate you then find a better one.

nacho66

I'm a sole trader.

I'm meeting my accountant next week. However I always like to get an opinion from people being in the similar situation. Helps to figure out, for example, if accountant is any good

Thanks for your answers