Any reason not to spend tax on expenses?

vqr2a0kg3lywos

Hey!

Is there any reason not to spend money held for tax on expenses for additional income earnings before 31st Dec is up?

I paid my tax back in October, and have since earned more additional income (I'm paid by PAYE for my job).

I've just worked out I have another 3,250e to cover the extra earnings since October.

Is there any reason I shouldn't use some of that to buy genuine things to help me continue to earn the income?

I do most of my work in front of a camera and on a computer and haven't upgraded in a while so thinking things like:

DSLR, Tripod, new keyboard, new mouse, prizes for social media competitions to increase followers etc.

I just figure I'm going to need to hold back this money for tax anyway, so there's no reason not to use it more efficiently?

Want to make sure everything is legit, certainly wouldn't be buying stuff that's not solely for making the income.

Thanks for any help!

endacl

Have you a pension you could fire a lump sum at?

FAMLEE

Knox Rancid Bath wrote: »

certainly wouldn't be buying stuff that's not solely for making the income.

Why not? That's what the rest of us do.. it's your money.

vqr2a0kg3lywos

FAMLEE wrote: »

Why not? That's what the rest of us do.. it's your money.

Yeah fair enough, just didn't know how it all worked and whether it would look "dodgy" because I was buying it all with 2 days to go.

I could literally spend all 3,250 of it without any issues right?

Just need to spend 2 days figuring out what to get!

vqr2a0kg3lywos

endacl wrote: »

Have you a pension you could fire a lump sum at?

I do have a pension from my last job but haven't looked at it since I left so not sure how that would work.

Probably don't have enough time to figure it out and to be honest I could do with some actual stuff anyway for now.

I'd love to buy a new computer (current one is 8 years old) but not sure they'd write off the whole amount in one year so want to be careful.

vqr2a0kg3lywos

There's no issues with what I want to do in general though right?

endacl

Knox Rancid Bath wrote: »

There's no issues with what I want to do in general though right?

Not at all.

vqr2a0kg3lywos

endacl wrote: »

Not at all.

Thanks! Appreciate it.

Wish I'd thought of this sooner, only have a few days to figure out what to spend it on!

relax carry on

Knox Rancid Bath wrote: »

Hey!

Is there any reason not to spend money held for tax on expenses for additional income earnings before 31st Dec is up?

I paid my tax back in October, and have since earned more additional income (I'm paid by PAYE for my job).

I've just worked out I have another 3,250e to cover the extra earnings since October.

Is there any reason I shouldn't use some of that to buy genuine things to help me continue to earn the income?

I do most of my work in front of a camera and on a computer and haven't upgraded in a while so thinking things like:

DSLR, Tripod, new keyboard, new mouse, prizes for social media competitions to increase followers etc.

I just figure I'm going to need to hold back this money for tax anyway, so there's no reason not to use it more efficiently?

Want to make sure everything is legit, certainly wouldn't be buying stuff that's not solely for making the income.

Thanks for any help!

No problem buying items to be used in your the furtherance of your non PAYE income business. Just be sure that what your are purchasing are fully allowable expenses for your business and if they are capital expenditure items that they are claimed as capital allowances.

ShaneODub

Hang on though; if you spend the 3200 on work-related expenses, do you reduce your tax bill by 3200, or do you reduce your taxable income by 3200? If it's the latter, then you're only reducing your tax bill by 41% (or whatever) of 3200. I just mention it because I often see people talking as if they'd be getting the items for free by writing them off against tax.

Sheep Shagger

The equipment you've listed as wanting to purchase would need to be written off over a period and not 100% this tax year no?

vqr2a0kg3lywos

ShaneODub wrote: »

Hang on though; if you spend the 3200 on work-related expenses, do you reduce your tax bill by 3200, or do you reduce your taxable income by 3200? If it's the latter, then you're only reducing your tax bill by 41% (or whatever) of 3200. I just mention it because I often see people talking as if they'd be getting the items for free by writing them off against tax.

The way I'm looking at it (perhaps incorrectly) is that 3200 is going to tax man.

But it I buy a camera for 500 quid then the money to tax man will be 2700.

vqr2a0kg3lywos

Sheep Shagger wrote: »

The equipment you've listed as wanting to purchase would need to be written off over a period and not 100% this tax year no?

For everything else I bought this year the accountant just wrote it straight off this year.

They were slightly lower priced items though - around 200 euro.

They said each thing would be looked at case by case. 1600 Euro laptop I bought they wrote straight off!

thegolfer

Knox Rancid Bath wrote: »

For everything else I bought this year the accountant just wrote it straight off this year.

They were slightly lower priced items though - around 200 euro.

They said each thing would be looked at case by case. 1600 Euro laptop I bought they wrote straight off!

Your accountant has advised you very badly I'm afraid. The laptop shot be written off at 12.5% over 8 years. You have filed an incorrect tax return!

vqr2a0kg3lywos

thegolfer wrote: »

Your accountant has advised you very badly I'm afraid. The laptop shot be written off at 12.5% over 8 years. You have filed an incorrect tax return!

Even for additional income not through a business?

I did query that but they said they decided just to write it off (accountant filed the return for me).

They did say for items that expensive they would decide case by case how long to write it off over generally but for the laptop they wrote whole thing off.

This is what I was told:

"With regards the laptop, light, etc. we wrote these off as the value was not significant and we wouldn’t expect those items to have a long useful life. It will depend on a case by case basis, if the new laptop is of significant value we will likely capitalise it and charge depreciation."

thegolfer

Knox Rancid Bath wrote: »

Even for additional income not through a business?

I did query that but they said they decided just to write it off (accountant filed the return for me).

They did say for items that expensive they would decide case by case how long to write it off over generally but for the laptop they wrote whole thing off.

Additional income is a business, no matter how small.

Generally smaller items up to a maximum of 500 could be written off though 1600 is a considerable.

Even if the accountant filed it for you, it is still your responsibility. The Irish tax system is a self assessment system, so it ultimately falls to you at the end of the day.

Potentially this could be let slide however if Revenue query your return you'll have to pay up.

With small accountancy firms, question everything, are they qualified, regulated by their body. Did you sign engagement letter, have they insurance.

thegolfer

Knox Rancid Bath wrote: »

Hey!

Is there any reason not to spend money held for tax on expenses for additional income earnings before 31st Dec is up?

I paid my tax back in October, and have since earned more additional income (I'm paid by PAYE for my job).

I've just worked out I have another 3,250e to cover the extra earnings since October.

Is there any reason I shouldn't use some of that to buy genuine things to help me continue to earn the income?

I do most of my work in front of a camera and on a computer and haven't upgraded in a while so thinking things like:

DSLR, Tripod, new keyboard, new mouse, prizes for social media competitions to increase followers etc.

I just figure I'm going to need to hold back this money for tax anyway, so there's no reason not to use it more efficiently?

Want to make sure everything is legit, certainly wouldn't be buying stuff that's not solely for making the income.

Thanks for any help!

Consider why you are earning additional income in the first place, which is to earn extra cash. No point in spending 1000 just to save either 20% or 40%, and be down the additional cash. More profit means more cash.

ShaneODub

Knox Rancid Bath wrote: »

The way I'm looking at it (perhaps incorrectly) is that 3200 is going to tax man.

But it I buy a camera for 500 quid then the money to tax man will be 2700.

That's what I'm getting at. I'm open to correction but I don't think your numbers are right. If you buy a €500 camera and reduce your profits from, say, €8000 to €7500, then I think you're reducing your tax from 41% of $8000 to 41% of €7500, so you're reducing your tax bill by €204, not €500. If you're paying 20% tax, then the reduction is even less. That's leaving aside the question of how many years you write it off over. Still might be worth doing, if you really need a camera.

vqr2a0kg3lywos

ShaneODub wrote: »

That's what I'm getting at. I'm open to correction but I don't think your numbers are right. If you buy a €500 camera and reduce your profits from, say, €8000 to €7500, then I think you're reducing your tax from 41% of $8000 to 41% of €7500, so you're reducing your tax bill by €204, not €500. If you're paying 20% tax, then the reduction is even less. That's leaving aside the question of how many years you write it off over. Still might be worth doing, if you really need a camera.

Accountant said anything up to around 1,000 could be written off generally (although they will judge it on case by case).

So if a 500 euro camera can be written off against the tax then I give that money to Amazon rather than the tax man, if that makes sense?

vqr2a0kg3lywos

thegolfer wrote: »

Consider why you are earning additional income in the first place, which is to earn extra cash. No point in spending 1000 just to save either 20% or 40%, and be down the additional cash. More profit means more cash.

You've lost me here.

Am I not just giving the cash to Amazon instead of the tax man if it gets written off against the tax?

vqr2a0kg3lywos

thegolfer wrote: »

Additional income is a business, no matter how small.

Generally smaller items up to a maximum of 500 could be written off though 1600 is a considerable.

Even if the accountant filed it for you, it is still your responsibility. The Irish tax system is a self assessment system, so it ultimately falls to you at the end of the day.

Potentially this could be let slide however if Revenue query your return you'll have to pay up.

With small accountancy firms, question everything, are they qualified, regulated by their body. Did you sign engagement letter, have they insurance.

Fair enough. This was for 2019 so it could be amended when it gets paid in full next year.

I'll question it again.

Otherwise I'll try and keep expenditure for most items below 500!

thegolfer

Knox Rancid Bath wrote: »

You've lost me here.

Am I not just giving the cash to Amazon instead of the tax man if it gets written off against the tax?

You are giving 100% of your cash to Amazon.

You are giving only 20% or 40% to the taxman.

Spend money if you have to and it's necessary to further the business. Don't spend money so as to avoid paying the taxman.

thegolfer

thegolfer wrote: »

Your accountant has advised you very badly I'm afraid. The laptop shot be written off at 12.5% over 8 years. You have filed an incorrect tax return!

Not correct. I bought a 1700 desktop last year which was written off over 6 months. Had a tax audit this year and no issues with the desktop or a phone worth 800 being written off over 6 months.

vqr2a0kg3lywos

thegolfer wrote: »

You are giving 100% of your cash to Amazon.

You are giving only 20% or 40% to the taxman.

Spend money if you have to and it's necessary to further the business. Don't spend money so as to avoid paying the taxman.

Can you explain this to me?

If I earn 10,000 then 51% goes to the tax man (given my bracket).

That's 5,100

If I spend 500 on a camera (that gets written off completely) then I give the tax man 4,600 but have upgraded my setup.

Or am I missing something completely?

vqr2a0kg3lywos

Deleted User wrote: »

Not correct. I bought a 1700 desktop last year which was written off over 6 months. Had a tax audit this year and no issues with the desktop or a phone worth 800 being written off over 6 months.

I wish I could swing getting a phone written off! I do partially use it for the earning of income but not fully which is annoying.

vqr2a0kg3lywos

Collin Red Bagel wrote: »

Once you spend the €500 on a camera, your profit becomes €9,500, and 51% of that is €4,845, so you have spent €500 but reduced your tax liability by €255 (which is 51% of the cost of the camera).

Okay fair enough, I must admit I still don't understand how that works.

The way I'm looking at it is I've made x amount of money and owe the tax man 3,200 euro of which I have that money waiting to be paid next year resting in my account.

But instead I've bought a camera for 500 euro and now only have to give 2,700 of that money to the tax man.

foxatron

Knox Rancid Bath wrote:

Okay fair enough, I must admit I still don't understand how that works.

Knox Rancid Bath wrote:

The way I'm looking at it is I've made x amount of money and owe the tax man 3,200 euro of which I have that money waiting to be paid next year resting in my account.

Knox Rancid Bath wrote:

But instead I've bought a camera for 500 euro and now only have to give 2,700 of that money to the tax man.

You have to take the 500 from the x amount you earned to get your taxable income figure. You dont take the 500 off your tax payable. The expense or capital allowance, which ever you use, just reduces the amount of money that your tax is calculated on not the amount of actual tax you pay.

vqr2a0kg3lywos

Collin Red Bagel wrote: »

You pay tax on your profits. Being able to write off a purchase means being able to reduce your profits by that amount, thereby reducing the amount to be taxed.


As in, because you bought a camera, your profits have reduced by €500. Assuming a 51% tax rate, you would have paid €255 in tax on that €500 profit. Because you bought the camera, you don't have €500 in profit, so you don't have to pay that €255 in tax any more.


This means your tax bill will fall by €255, not the full amount of the camera.

Okay this makes a lot more sense now and is good to know before I go blowing all my cash!

So if I'm paying 51% on all my additional income I can work it out like this:

All earned income - money spent on expenses = total profit

Then 51% of total profit = tax needed to be paid?

vqr2a0kg3lywos

foxatron wrote: »

You have to take the 500 from the x amount you earned to get your taxable income figure. You dont take the 500 off your tax payable. The expense or capital allowance, which ever you use, just reduces the amount of money that your tax is calculated on not the amount of actual tax you pay.

I think I finally got it

So if I'm paying 51% on all my additional income I can work it out like this:

All earned income - money spent on expenses (as long as it can be fully written off) = total profit

Then 51% of total profit = tax needed to be paid to the tax man?

johnnyskeleton

Knox Rancid Bath wrote: »

I wish I could swing getting a phone written off! I do partially use it for the earning of income but not fully which is annoying.

You can apportion it:

https://www.localenterprise.ie/Fingal/Start-or-Grow-your-Business/Start-a-Business/Understanding-Taxes/

vqr2a0kg3lywos

johnnyskeleton wrote: »

You can apportion it:

https://www.localenterprise.ie/Fingal/Start-or-Grow-your-Business/Start-a-Business/Understanding-Taxes/

Thanks! Will keep it in mind.

mystic86

It's not exactly complicated. You're treating the expense like a tax credit, where as in reality it operates like a relief.

You do not deduct the expense from the tax liability. Simple as that.

You deduct it from the taxable income.

You then calculate your liability on that income using the appropriate rates and bands, and credits.

You need to be more clued in.

Calahonda52

Knox Rancid Bath wrote: »

The way I'm looking at it (perhaps incorrectly) is that 3200 is going to tax man.

But it I buy a camera for 500 quid then the money to tax man will be 2700.

No,
lets assume 50% tax rrate here.

current tax bill 3200
Pre tax income 6400
additional spend 500
new pretax income 5900
New tax bill: 2950

so the camera cost you 250

vqr2a0kg3lywos

mystic86 wrote: »

It's not exactly complicated. You're treating the expense like a tax credit, where as in reality it operates like a relief.

You do not deduct the expense from the tax liability. Simple as that.

You deduct it from the taxable income.

You then calculate your liability on that income using the appropriate rates and bands, and credits.

You need to be more clued in.

Yup, like I said, I didn't understand but now I do.

I appreciate all the help in this thread.

This is how I'm working it out going forward:

Money earned - money spent = total profit

51% of total profit = tax man money

vqr2a0kg3lywos

Collin Red Bagel wrote: »

One thing to watch out for is that not all money spent is tax deductible, even if it is a legitimate business expense (for example, client entertainment, food, etc), so best to run it by your accountant.

Thanks!

I do pretty basic stuff so wouldn't be anything like that.

I'll keep it in mind though, but as a basic rule the maths above should work...I hope

thegolfer

thegolfer wrote: »

Your accountant has advised you very badly I'm afraid. The laptop shot be written off at 12.5% over 8 years. You have filed an incorrect tax return!

Laptop written off over 8 years? That’s bananas talk. A laptop is a consumable with a very short life span. No way is it counted as a capital expense. Written off in full in one year is very reasonable for such an item.

barneystinson

Atlas Hot Garter wrote: »

Laptop written off over 8 years? That’s bananas talk. A laptop is a consumable with a very short life span. No way is it counted as a capital expense. Written off in full in one year is very reasonable for such an item.

What authority do you base that statement on? It doesn’t sound right to me. Is it just some sh1te you’ve decided yourself like?

thegolfer

Atlas Hot Garter wrote: »

Laptop written off over 8 years? That’s bananas talk. A laptop is a consumable with a very short life span. No way is it counted as a capital expense. Written off in full in one year is very reasonable for such an item.

Unfortunately it is true. There is legislation and case law built up over a number of years to support the position I have stated.

thegolfer

thegolfer wrote: »

Unfortunately it is true. There is legislation and case law built up over a number of years to support the position I have stated.

Even another poster on the thread has confirmed they have just done this and their auditor was happy with it.

A laptop could be replaced after as little as 2 years, 4 max. I can’t see the justification for writing them off over 8 years when they are long in the bin.

barneystinson

Atlas Hot Garter wrote: »

Even another poster on the thread has confirmed they have just done this and their auditor was happy with it.

A laptop could be replaced after as little as 2 years, 4 max. I can’t see the justification for writing them off over 8 years when they are long in the bin.

You’re just demonstrating your own ignorance now, of both accounting principles and tax rules.

From an accounting perspective an asset is supposed to be depreciated (written off) over its expected useful economic life. The only way you could justify expensing the cost of a laptop would be if it is expected to be no longer a useful asset to the business within 12 months.

From a tax perspective a laptop clearly falls within the definition of plant & machinery. Expenditure on a laptop is capital in nature and the correct tax treatment follows. This means a capital allowance of 12.5% per annum AND a balancing allowance when the laptop is ultimately scrapped.

So, if it is replaced at the end of year 2, you would write off 12.5% of the cost in year one and (up to) 87.5% in year two.

That’s the correct treatment based on your statements above.

barneystinson

[Deleted User] wrote: »

Not correct. I bought a 1700 desktop last year which was written off over 6 months. Had a tax audit this year and no issues with the desktop or a phone worth 800 being written off over 6 months.

I’m not sure what writing something off over 6 months even means.

Notwithstanding this, if your purchase was last year (2018), and you were audited this year (2019), then the income tax treatment of that item won’t have been within scope of the audit.

If you were audited this year in respect of 2018, it will have been a VAT and/or PREM audit, neither of which would have given any consideration to the income tax treatment of those items. (Which, by the way, was definitely incorrect.)

mickdw

I certainly put my computers in at 12.5 percent annually.
Knocking whole cost off as an expense in one go is dodgy.