I have a small company with myself as the only 'employee'. Given the work that I do, I often rely on freelance workers who I hire from around the globe.
I'm aware that, as freelance workers, I don't believe I can claim these payments as expenses - even though the expenses are directly company-related.
That said, should I be paying them through my personal bank account or is it acceptable to pay them from my company account? Or does it make no difference at all?
Would the decision, either way, impact tax returns at the end of the year (I'm a new start-up company, so relatively new to a lot of these things).
Thanks in advance for any replies.
It depends on what type of business you have. If you are a sole trader, then you don't have a company and your comment is misleading. You have business. In this case you can either pay from personal or from your business bank account. A "hired" freelancer is your expenses as they invoice you for that. If they don't, then you can't show it as expenses as you don't have a proof of expenses.
If you have a limited company, then the situation is a bit different - expenses for a company should only go out from the company's bank account. Again, all expenses should be recorded and proved with an invoice (most common) or a similar document.
Depending on your annual income, I'd consider finding a proper (best local - who knows the Irish laws) accountant who could charge you once a month and do all the accountant work for you. That could be somewhere between a few hundred to around 1000 Euro in your case. Most likely around or less than 500 as there is very little work (mainly, bookkeeping and annual reports if you are a Limited company and even less if you're a sole trader), I suspect.
I'm only an ACCA student starter in the first exams, so please take my words with a pinch of salt.
I mean, my situation is quite simple I think.
I don't have any expenses (aside from accounting fees) whatsoever. I do have a limited company but no employees. Just myself. No VAT issues either. I do take a salary, but not that often. Basically a sole trader with a Ltd.
Yet even then, I'm paying 240 euros a month.
Am I being ripped off?
As to your point on the company/expenses, so even if the freelancer is not issuing invoices (which is the case), I can still take these funds I pay him from the company bank account?
How do you get cash as salary to yourself? In a Limited company you must pay salary to yourself through a payslip. A salary is one of the company's expenses. Other expenses are phone, internet etc. if they are in company's name. All materials (if need to buy to gain profit)... depending on the nature of business - are expenses.
You CANNOT mix money in your personal account and business bank account. Check you books - whatever is your Ltd business balance - it should match your business bank account balance (taking in to consideration if all invoices are paid and no cash operations made, no petty cash etc). Only sole traders can mix their business money with their personal money. In fact, they are not even obliged to use a business bank account. But for a Limited company you is a strict no. Everything what goes from your personal account to a business account is your investment to the company.
If you pay to your random accountant without an invoice, then you can't pay it from the company's bank account and you can't write that off as business expenses. Everything what goes into and out from the business bank account must be supported with proper documents: contract, payslip, invoice etc.
To my best understanding, you can't be a taking a salary just whenever you want in a Limited company - if you work as a contracted employee in the company, you should get paid regularly. If you decide not to get salary, you should whether support that with a written agreement between you and the company (a Limited company is an independent entity. Limited company is not equal to the company's founder. You and your company are two different things, stop thinking as a sole trader, when we're talking about a Limited company - that's dangerous and wrong way of thinking) or give your salary as a loan, or invest to the company.
If you don't document these agreements and won't support your financial decisions between you and the company, it may raise some questions during bookkeeping.
If you're not reaching Vat thresholds (in Ireland €37,500 in any continuous period of twelve months. This increases to €75,000 for the sale of products.), then you don't need to register for VAT, if you don't want.
240 Euro a month is very low and pretty much standard for bookkeeping. I don't think anyone would do for lower. I think you should be paying more for accountant :) Just make sure your account is trustworthy and has an accountant qualification, registered to one of few accountants' associations/bodies (ACCA, ACA, CIMA etc.).
As a company's founder you are liable and responsible to make sure everything is in the right order. I recommend reading this https://www.citizensinformation.ie/en/employment/types_of_employment/self_employment/setting_up_a_business_in_ireland.html and a The Companies Act 2014 (Ireland) - that's your main rules. In addition, your Company's Constitution.
Who is your secretary? This person will be responsible to file the annual return for Revenue on time.
I hope you have setup your company just very short time ago (within half a year or 9 months at most) :)
Have a read just to get some basic understanding: https://accountantonline.ie/guides/company-formation/ & https://accountantonline.ie/guides/setting-up-a-limited-company-in-ireland-an-essential-checklist/
My accountant informs me, approx. near the end of each month, whether I want to take a given sum as a salary for that month.
Then, he would prepare the payslip element.
Perfect, then your account knows what they do! 👍️ Now just to get back to your main question - I think your accountant doesn't invoice you as they may think if the amount is low, not much of activities in the business and the company is relatively new, than their payment could be included in to your salary if you know what I mean. That would mean no invoice and no accountant activities recorded on the business books. Just entirely your own regular personal expense as it's up to you what you do with your own money. Of course, that's not the best and not the most suitable way from business perspective, and it should be temporary. But for a new small business it could be practical (again, not recommended). Hope, it answers to your questions ;)
This would mean that money settles in your accountant's pocket. And if there's no invoice, much of a chance, that they also don't pay tax of this income. I personally wouldn't promote this kind of a behaviour as an accountant in my eyes should be very transparent and self-conscious about tax obligations etc. It indicated to me that this accountant isn't registered with any of the accountants' bodies.
Wow Citrus! That’s some assumption to jump to.
You are suggesting his accountant is committing fraud or tax evasion based of what now???
That's what I was wondering! :)
Relax - just guessing and making assumptions, based on the above. That's easy to do when a situation isn't clear. To be aware of such a possibility is better than to close the eyes and ignore entirely.
But what did I say that gave you the impression that something underhand may be at play?
Paying regularly without an invoice ("I'm paying 240 euros a month" & "even if the freelancer is not issuing invoices (which is the case)"). Expenses should be supported with documents. If not an invoice, then a contract agreement for regular monthly amount (such as, subscription) would do... I'm no expert and just an immature in accounting, only started. But there's something I'm missing or not understanding about these payments. It should be quite clear what the money is for. If they go from your personal account, then, obviously, it's up to you.
But again, there's another issue - is this accountant qualified, registered with a body, do you personally know this person etc etc? I mean, you give your business details and possibly access to the ROS - it has to be a trusty professional. This wouldn't apply if your secretary file the accounts, not your accountant, who does only a bookkeeping.
Citrus - Why are you bringing the OPs accountant into question??? And their professional body?? And access to ROS?? Do you assume poor professional integrity of all??
it is very normal to pay monthly towards accountants costs these days. These are payments on account as per agreed in the letter of engagement, which only the OP and his accountant know the specifics of!!
if you are only a student accountant please consider the consequences of any advice you provide.
OP, as you have engaged an accountant then all these queries should be discussed with them as they are the only one who understand the particulars of you /your company.
As per s81 TCA any expenses incurred wholly and exclusively for the purpose of the trade are allowable deductions, but again, consult with your accountant as taking advice from an online anonymous source is akin to taking advice from the man down the pub.
The problem is that advice can cost money.
The last time I had a question about VAT, it cost me 1,500 euros.
I don't understand why payments to freelance workers can't be expensed? Are we talking nixers here? Genuine, tax compliant free lancers will give you an invoice.
But plus one on marxipan's advice. Ask your accountant or get a better one and ask them.
Does it matter if I pay them from my company account even if I don't have invoices?
I've been paying them from India to do my work, and they don't provide invoices. I don't think they're tax compliant, to be honest.
If you pay from a business bank account, you should have a proof of the expenses. There could be some small amounts here and there with retail receipts when paid with a bank card (eg, small office or canteen items), but in general the invoices or some type of a contract (written agreement) for regular payments is required.
My previously raised concerns regarding compliance were just the ethical questions. I mean, I would care who I'm paying for and what is their qualification etc etc. If I go to a consultation or give a job to any type of specialist, my first questions are always about their qualification and experience. It helps me to understand the value of money I'm paying them, and also builds a trust/distrust, that's one of the things to consider, before giving someone my business' books. Keep in mind that, for example, in order to call yourself accountant, in some countries you're required to have a proof. While in Ireland anyone could say they are accountants while in fact they are not. Plenty of unqualified accountants in this world, when need to hire another accountant to fix the previous accountant's mistakes.
But not everyone is like that - some people wouldn't care about it and may be promoting such a behaviour in the accountancy market.
I'm not sure that there's any requirement in law or practice that explicitly states that an invoice or contract is required in order to claim an expense for CT/IT. All you need is sufficient evidence to satisfy a Revenue official that the expense happened and was business related. Given that the freelancers are in another country, I'm sure there's some sort of correspondence and the online banking payment logs will prove of payment.
At OP. If you have a company you should pay all the company's expenses from the company bank account.
I agree that some sort of written agreement or contract could indeed be sufficient instead of an invoice. I've noticed that Ireland is pretty lenient on this and even an email agreement could be one of the proofs, if I'm not mistaken (talking from my own experience, but I still got an invoice in this case, and the amount was just a few hundred, and just a once off payment).
There's space for improvements, to make it more standardised in practice. Lack of standard brings too much confusion and opens space for possibilities of mistakes, misinterpretations etc.