Which Accountant Is Right?

paul7g

Hey,

My accountant told me (sole trader) that I could work out my motor expenses using the civil service rates for all of my business meetings.

I was just speaking with one of my friends who is also a sole trader, and he said that his accountant had just told him that he can't use civil service rates and that he must add up the following and then work out what percentage of his car was used for business purposes, and then submit that as his overall motoring expenses:

- motor insurance
- motor tax
- servicing
- nct
- petrol

What is the correct advice to follow?

Paul

Valetta

paul7g wrote: »

Hey,

My accountant told me (sole trader) that I could work out my motor expenses using the civil service rates for all of my business meetings.

I was just speaking with one of my friends who is also a sole trader, and he said that his accountant had just told him that he can't use civil service rates and that he must add up the following and then work out what percentage of his car was used for business purposes, and then submit that as his overall motoring expenses:

- motor insurance
- motor tax
- servicing
- nct
- petrol

What is the correct advice to follow?

Paul

You can only claim actual incurred expenses.

Where would the mileage rates be paid from?

Kristopherus

IMO the first accountant is right. If I'm wrong, can someone explain when Revenue stopped allowing sole traders from claiming public servants mileage rates.please?

glued

A sole trader cannot claim mileage as you can't charge mileage against yourself as that that would make no sense. You are allowed the business percentage of your motor expenses.

The civil service rate of 39c is not applicable as you can't charge mileage against yourself.

paul7g

Thanks guys.

I don't understand what you mean about charging mileage against yourself.

If i travel 60km to meet a client, then i would have presumed that i multiply 60km X 39c.

Anyway, could you answer these questions as i want to make sure my expenses are 100% accurate. I appreciate that all of the questions below are very similar, however i would appreciate if you could help answer them individually as i don't want this coming back on me :-(

01 - what other motoring expenses contribute to the overall cost apart from the following:

- motor insurance
- motor tax
- servicing
- nct
- petrol

What about annual car depreciation?

02 - if i put €50 petrol in my car at the start of the week, and i travel to a few client meetings, the gym, the super market and few other trips, how do i know what proportion i should put down as actual business costs based on the €50 i put in my car at the start of the week?

03 - one week, the same business trip could take 40 mins, however other days the same trip could take 1hr 15mins due to bad traffic, so what do i put down

04 - i have a detailed log of all client meetings, however i have not kept all of my petrol receipts, and if i did, how would i even know what % of the overall fuel costs contributed to clients meetings?

05 - once i finally do manage to work out the total cost of my car for the year, how do i work out what % of my car was used for business

Paul

barneystinson

Kristopherus wrote: »

IMO the first accountant is right. If I'm wrong, can someone explain when Revenue stopped allowing sole traders from claiming public servants mileage rates.please?

They never stopped, because they never started. Flat rates for T&S apply to the reimbursement by EMPLOYERS to their employees (which includes civil servants). This practice is entirely extra statutory and operates for the convenience of employers, employees and the tax administration. (Applying the letter of the law, all expenses payments should be taxed under PAYE, and the employee claims a tax refund after the year end.)

For computing the profits of a trade for income tax purposes, only amounts laid out "wholly & exclusively" for the purposes of the trade can be deducted.

barneystinson

paul7g wrote: »

Thanks guys.

I don't understand what you mean about charging mileage against yourself.

If i travel 60km to meet a client, then i would have presumed that i multiply 60km X 39c.

Anyway, could you answer these questions as i want to make sure my expenses are 100% accurate. I appreciate that all of the questions below are very similar, however i would appreciate if you could help answer them individually as i don't want this coming back on me :-(

01 - what other motoring expenses contribute to the overall cost apart from the following:

- motor insurance
- motor tax
- servicing
- nct
- petrol

What about annual car depreciation?

02 - if i put €50 petrol in my car at the start of the week, and i travel to a few client meetings, the gym, the super market and few other trips, how do i know what proportion i should put down as actual business costs based on the €50 i put in my car at the start of the week?

03 - one week, the same business trip could take 40 mins, however other days the same trip could take 1hr 15mins due to bad traffic, so what do i put down

04 - i have a detailed log of all client meetings, however i have not kept all of my petrol receipts, and if i did, how would i even know what % of the overall fuel costs contributed to clients meetings?

05 - once i finally do manage to work out the total cost of my car for the year, how do i work out what % of my car was used for business

Paul

This isn't rocket science.

1. You need to keep all your receipts for all of your motor expenses.

2. You need to log your business mileage.

3. You compare this with your total mileage for the year.

4. Take 2/3 - That gives you a % that you can apply to the total from 1.

smcgiff

This is another major difference between self employed and incorporation.

If you had formed a limited company you could claim civil service rates.

paul7g

barneystinson wrote: »

This isn't rocket science.

1. You need to keep all your receipts for all of your motor expenses.

2. You need to log your business mileage.

I never said it was rocket science, however I do not know the answers and it seems a very fluffy and blurry system, especially considering 2 accountants are providing different information.

If I kept all of my receipts, how would I know what % of my total receipts contribute to business use.

As I said above, if I put €50 petrol into my car on a Monday I will be doing a mixture of personal and business mileage, so how do I work out what is actually business use?

Does car depreciation come into affect too?

Valetta

smcgiff wrote: »

This is another major difference between self employed and incorporation.

If you had formed a limited company you could claim civil service rates.

You can only claim civil service rates against Corporation Tax @ 12.5%

Sole traders are much better off claiming actual expenses at personal tax marginal rates.

barneystinson

paul7g wrote: »

I never said it was rocket science, however I do not know the answers and it seems a very fluffy and blurry system, especially considering 2 accountants are providing different information.

If I kept all of my receipts, how would I know what % of my total receipts contribute to business use.

As I said above, if I put €50 petrol into my car on a Monday I will be doing a mixture of personal and business mileage, so how do I work out what is actually business use?

Does car depreciation come into affect too?

Sigh.

If you keep all your receipts then that's how much 100% of your motoring costs are, yes?

If you log all of your business journeys, then you have a quantifiable amount of business usage, measured in miles/km's.

And if you read your odometer at the 31st Dec each year you know your total mileage in the year.

1 x 2/3 is as reasonable an approximation of your business motor expense as can be calculated. The vast majority of sole traders, or their accountants, simply take a set proportion, such as 1/3, every year and argue the toss if and when they get an audit.

Depreciation is a different matter - you get a wear & tear allowance on any plant / machinery (including car) used in your trade. It's 12.5% of its cost p.a. (may vary depending on CO2 emissions category), again apportioned depending on proportion of business usage.

paul7g

barneystinson wrote: »

Sigh.

If you keep all your receipts then that's how much 100% of your motoring costs are, yes?

If you log all of your business journeys, then you have a quantifiable amount of business usage, measured in miles/km's.

And if you read your odometer at the 31st Dec each year you know your total mileage in the year.

1 x 2/3 is as reasonable an approximation of your business motor expense as can be calculated. The vast majority of sole traders, or their accountants, simply take a set proportion, such as 1/3, every year and argue the toss if and when they get an audit.

Depreciation is a different matter - you get a wear & tear allowance on any plant / machinery (including car) used in your trade. It's 12.5% of its cost p.a. (may vary depending on CO2 emissions category), again apportioned depending on proportion of business usage.

Thanks for explaining this. Much clearer now.

I'm probably not putting down enough expenses of this is the case, however at the same time I want to be 100% sure that everything is right.

barneystinson

paul7g wrote: »

Thanks for explaining this. Much clearer now.

I'm probably not putting down enough expenses of this is the case, however at the same time I want to be 100% sure that everything is right.

Well your first priority should be getting a new accountant; it's inexcusable for someone doing this for a living not to know that civil service rates for EMPLOYEES don't apply to sole traders.

smcgiff

Valetta wrote: »

You can only claim civil service rates against Corporation Tax @ 12.5%

The director/employee claims them 100%

Howjoe1

Would Revenue really disallow a claim where someone used a conservative figure based on Civil Service Mileage rates in the absence of receipts?

glued

Just say your annual running costs are:

Insurance - 1000
Petrol - 3000
Repairs - 500

That gives you 4,500 in annual motor expenses. You cannot claim that 100% of these are for business purposes and the most the inspector of taxes will allow you to claim is 75% of the total. This figure varies and it depends on back up you can provide the inspector and the nature of your business.

To be honest if your accountant cannot provide this information to you then you need a new accountant.

Howjoe1

glued wrote: »

Just say your annual running costs are:

Insurance - 1000
Petrol - 3000
Repairs - 500

That gives you 4,500 in annual motor expenses. You cannot claim that 100% of these are for business purposes and the most the inspector of taxes will allow you to claim is 75% of the total. This figure varies and it depends on back up you can provide the inspector and the nature of your business.

To be honest if your accountant cannot provide this information to you then you need a new accountant.

I thought the expense had to be wholly and exclusively incurred under legislation?

glued

Howjoe1 wrote: »

Would Revenue really disallow a claim where someone used a conservative figure based on Civil Service Mileage rates in the absence of receipts?

Well, yes. If Director A works for A Limited and claims that he travelled X miles but has no back up for that figure then in the event of a revenue audit; that travel claim would likely be disallowed and interest and penalties added on to the underpayment of tax.

For a sole trader civil service mileage rates aren't applicable as a sole trader cannot charge himself mileage.

Revenue are cracking down hard on travel and subsistence as its a figure that has the largest amount of guesswork attached to it and it's a figure that is largely incorrect 99% of the time. Also there are lots of limited companies not charging BIK on car use for directors/employees. Revenue have been particularly targeting this area over the last two years.

paul7g

Thank you for all the help.

Just to recap, am i right in saying that i can work out my motoring expenses by:

Motor Business Usage (MBU) %: add up all business meeting KM's traveled for the year and compare that figure as a percentage to my over all annual KM's traveled for the whole year.

Then add up all of the following:

- fuel
- insurance
- tax
- nct
- servicing

And multiply that total by MBU % = total business motoring expense

dbran

Would Revenue really disallow a claim where someone used a conservative figure based on Civil Service Mileage rates in the absence of receipts?

They might Howjoe, it depends who you get or in what circumstances.

You are supposed to have the receipts. You don't have them. You have used a method of calculation that does not apply to you and a method that would normally work in your favour.

Your idea of conservative may differ from the revenue inspector's idea.

Do it right the first time and don't rely on the inspector to take pity on you should the evil day come.

dbran

rahmalec

paul7g wrote: »

Thank you for all the help.

Just to recap, am i right in saying that i can work out my motoring expenses by:

Motor Business Usage (MBU) %: add up all business meeting KM's traveled for the year and compare that figure as a percentage to my over all annual KM's traveled for the whole year.

Then add up all of the following:

- fuel
- insurance
- tax
- nct
- servicing

And multiply that total by MBU % = total business motoring expense

Yes :-)

Also, for capital allowances;
(Sum paid for car) X (MBU) X 12.5% for 8 years.
I think there's a limit on the price of the car. Something like 24k?