Starting a new business. "Tax question"

greystoke

I am in the process of starting a new business and was wondering if anyone has a list of items or services that are tax deductable. eg Computers ,company cars?

Thanks

20LEgend

Is it a company or will you be operating as a sole trader?

If its a company your directors salary will be tax deductible, if its a sole trader any money you take out as drawings won't be.

Any capital expenditure (cars, computer etc) is not tax deductible in the year of expenditure, instead you will receive a capital allowance which means you can write off the value of the asset over a period of time thus reducing your profits.

You will then have your obvious deductions such as telephone, motor & travel, light & heat, purchases (if any).

You shuold contact an accountant for specifics and advice.

kluivert

Check out www.revenue.ie which now supply a compensive list of deductable expenses.

The question you have to ask is this expense for the purpose of the business - if yes then it is deductable - if no its not.

I have seen people claiming sandwiches at lunch time as being deductable - no - how can this be for the purpose of the trade. This is for the purpose of yourself and yourself alone. Its a simple question.

midget lord

Depends on what you mean by cars and computers to be honest.

If its the actual purchase of a car then, what 20legend said is correct in that it will be written off over a few years against your taxable profits, but thats assuming you will be trading through a limited company and the company owns the car. If the company does not own the car or you are trading as a sole trader then you should charge the company for usage. Either through recording your mileage and using the appropriate civil servant rate or by keeping your petrol/diesel/repair receipts and charging them through the company.

Computers can be written off in year of purchase, i.e. the say €1,000, you pay can be written off against profits immediately or you can capitalise and depreciate, giving rise to capital allowances over say 2 or 3 years. IMO you are better writing it off immediately, less tax to pay no rather than next year.

If you wanna speak at length contact me by pm and we can talk over the phone or by email.

midget lord

kluivert wrote:

Check out www.revenue.ie which now supply a compensive list of deductable expenses.

The question you have to ask is this expense for the purpose of the business - if yes then it is deductable - if no its not.

I have seen people claiming sandwiches at lunch time as being deductable - no - how can this be for the purpose of the trade. This is for the purpose of yourself and yourself alone. Its a simple question.

Your living in a dream world bud.

homeOwner

midget lord wrote:

Your living in a dream world bud.

Can you expand on this?

I would have agreed with what he said so am interested to hear why this isnt the case. I thought the general rule (and in fact that is what the revenue site says) was if the expense is for the sole purpose (or the vast majority of purpose) for business reasons then it is deductable, otherwise it isnt.

midget lord

homeOwner wrote:

Can you expand on this?

I would have agreed with what he said so am interested to hear why this isnt the case. I thought the general rule (and in fact that is what the revenue site says) was if the expense is for the sole purpose (or the vast majority of purpose) for business reasons then it is deductable, otherwise it isnt.

Im not going to go into the details of sole trader's accounts, but lets say that there are no specific financial reporting standards for accountants to adhere to when compiling accounts for a sole trader. So we are 'generally' guided by the revenue, or what the accountant deems acceptable when compiling accounts and some of it can be particularly arbitrary. For example if you work from home, you can legitimately write off part of your esb and gas bills against your income for IT purposes. But how do you know how much? No tax inspector can say anything to the contrary, similarly with motor expenses, phone bills etc.

PTL

some accountants are very .... creative with what they say you can claim against profits... the best i heard and am saying it to see what youse think

If you working from your house you can claim your dogfood cause its a guard dog for the premises ..

Is this just wishful thinking or true? and if its true what about a fish tank / fish food etc around your office area if you have clients over to your office area?

homeOwner

midget lord wrote:

Im not going to go into the details of sole trader's accounts, but lets say that there are no specific financial reporting standards for accountants to adhere to when compiling accounts for a sole trader. So we are 'generally' guided by the revenue, or what the accountant deems acceptable when compiling accounts and some of it can be particularly arbitrary. For example if you work from home, you can legitimately write off part of your esb and gas bills against your income for IT purposes. But how do you know how much? No tax inspector can say anything to the contrary, similarly with motor expenses, phone bills etc.

I thought he was referring to Limited Companies.
But besides that, I know sole traders who take the p1ss when it comes to their expenses, but even if revenue hasnt provided strict guidelines the general rule of it being for the sole purposes of business still apply. If you get audited dont you need a good reason to have expensed something. You or your accountant can say whatever you like but if the auditor doesnt agree then I would assume you are potentially in trouble.
Anyway chances of being audited are slim so probably not an issue.

midget lord

homeOwner wrote:

Anyway chances of being audited are slim so probably not an issue.

And this is the bottom line. Why would the revenue care about Joe Bloggs who pays 5k a year in IT when they have far bigger fish to fry.

20LEgend

Midget lord is right. The revenue aint gonna go inspecting every expense, if its looks reasonable then you'l be fine.
At the end of the day stock(if your a trading business) will be your balancing figure i.e. how much tax your willing to pay

RainyDay

midget lord wrote:

And this is the bottom line. Why would the revenue care about Joe Bloggs who pays 5k a year in IT when they have far bigger fish to fry.

Midget Lord is dangerously wrong. The latest list of Revenue settlements with tax defaulters include 40+ people where the outstanding tax was less than €10k, and some as low as €3k-€4k. Of course, their penalties and interest (at the punitive rate they charge) brought up the total settlements to €30k-€40k in some cases.

kluivert

Midget Lord i hope your not a financial advisor.

Accountants do have specfic standards to adhere to in compiling sole trader accounts. FRS - Financial Reporting Statements - theres is now 25. FRSSE - Financial Reporting Statements for Smaller Entities. SSAP's - Standard Statements of Accounting Practice. FRED - Financial reporting Exposure drafts. UITF - Urgent Issue Task Force reports. IFRS - International Financial Reporting standards.

Accoutants bodies are member of IFAC and have a professional code of conduct to adhere when preparing accounts as well.

So get your head out of the clouds and dont give people bordering illegal advise.

ianmc38

I agree with Kluivert. I'm no Sherlock Holmes, but anybody that rights off expenses against tax understands the sandwich analogy.

midget lord

kluivert wrote:

Midget Lord i hope your not a financial advisor.

Accountants do have specfic standards to adhere to in compiling sole trader accounts. FRS - Financial Reporting Statements - theres is now 25. FRSSE - Financial Reporting Statements for Smaller Entities. SSAP's - Standard Statements of Accounting Practice. FRED - Financial reporting Exposure drafts. UITF - Urgent Issue Task Force reports. IFRS - International Financial Reporting standards.

Accoutants bodies are member of IFAC and have a professional code of conduct to adhere when preparing accounts as well.

So get your head out of the clouds and dont give people bordering illegal advise.

Did you not read what i said. If this guy is operating as a sole trader then there are no applicable reporting standards. You seem to fancy yourself as a lecturer, or at least you have just started sitting an audit lecture, so you should be aware of this.


In realtion to the revenue settlements these are all for underdeclarations of the various taxes, primarily related to offshore deposits. Buying yourself a baguette and writting that off against your income is not going to give rise to you having to hand over the difference. If anyone is of the opinion that that is the case then, as i have said before, they are living in dreamland, as this is not what happens in practice. HYPOTHETICALLY.

kluivert

Am a trainee working practice sitting my finals.

Midget Lord i understand where you are coming from or at least i do. There is no legal requirement eg Companies Acts for sole traders to report. However there is a Tax law obligation to prepare accounts in order to ascertain Schedule D case I/II profits if deemed appropraite. Alternative being the preparation of an Income and Expenditure Account.

A sole trader can complete their own tax return. But when they come to the section in the Form 11 that requires figures from an accounts extract where do they get these figures from? An accounts extract most accompany the form 11 return.

Should a sole trader have a revenue audit, the exist of a set of accounts will help that individual prove to the revenue that the figures they arrive at in determining their final liability is correct has they have complied with the 'relevant' accounting reporting standards (FRSSE) in preparing the accounts and then complied with the 'relevant' tax requirements when determining the final case 1 liability after add backs and deductions. e.g Depreciations (accounting term) v Capital Allowance (taxation term)

My critism was about not informing the orginal poster about the facts and all the facts for he or she to make an informed decision.

The revenue will fry any fish that sticks out. Big or small.

ck1

My experience with Revenue is that it is the little people that they will go after equally if not more than the bigger fish as it is much easier to collect outstanding taxes, interst and penalties from the little people.

One of the main items that the Revenue Auditors look at is expenses. Motor Expenses and Entertainment would be a main areas that they look at. In order for expenses to be deductible they must be "Wholly and exclusively for the purpose of the business" One Revenue Auditor refused to take into account the mileage records from a particular director. After arguement he did except it but what was funny was his reasoning for originally discounting it "it was all written in the same pen". The purchase of a lunch is not a deductible expense.

In relation to Entertainmet, in order for this to be taken as a deduction it must be for staff only. For eg, if you have a Christmas Party and spouses are invited, technically the whole expenses is non deductible. Another eg is, say the business owner travels abroad on business and takes his wife/husband along, then the whole trip is strictly speaking non deductible.

In relation to equipment (catorised as Plant and Machinery for Revenue purposes) , the only way that I have ever seen writing off of Computers in one year is under the EWorking scheme, otherwise they are written off as Capital Allowances over 8 years at a rate of 12.5% per annum if purchased after 4th December 2002.

If there is a way of writting computers off in one year as Midget Lord suggests I would be very interested in finding out.

Other expenses in the normal running of the business are generally deductible but one that often stands out is premiums for KeyPerson Insurance. If the "Keyperson" is a 15% shareholder or above, then the premium is non deductible for tax purposes even thought the proceeds of the policy is subject to tax as a trading receipt.

midget lord

kluivert wrote:

The revenue will fry any fish that sticks out. Big or small.

First of all, best of luck with your finals, its a tough year.

Secondly, i only quoted the last sentence from last post as this is the important point.

Obviously if someone eats phesant and natural truffles for lunch and put their expenses through their books then this will stick out in most small sole trader accounts (say 100k t/o), i.e. €50 for lunch per day over 50 weeks is €12,500 a year in subsistence is like writing subsistence in a golden pen. If a person has a baguette for lunch, say €5 a day over the same period is €1,250 per year. A fairly average subsistence figure for a sole trader of this size, depending on their trade of course.

This could be argued back and forth for eternity but at the end of the day its down to the accountants/tax advisers opinion on such a subject. Some will deem it aceptable, some will not. Which is the good accountant?

ck1

In relation to Subsistance, it is only allowed when the employee is temporarily away from his/her normal place of work. Normal place of work is obviously where the employee performs their normal duties or in the case where the jobs involves a lot of travel, e.g visiting customers, then the employers business premises is their normal place of work. Each case on its own merits. Under no circumstances could subsistance be claimed for lunch over 50 weeks and if this was done and spotted by the revenue it would give rise to interest and penalties. The penalties that the revenue impose are directly relates to the level of offence and this type of accounting proceedure would potentially be treated as deliberate and could potentially deem penalties at the higest level, i.e. 200% of the taxes due.

Where an employee incurred an expense “wholly, exclusively and necessarily” in the performance of their duties of employment, such expenses can be reimbursed directly tax-free. These can be reimbursed by way of a flat-rate allowance or by actual vouched receipts. All this is detailed on the Revenue website, leaflet number IT54.

RainyDay

midget lord wrote:

DIn realtion to the revenue settlements these are all for underdeclarations of the various taxes, primarily related to offshore deposits.

You're missing the point. These bogus non-resident account holders were sitting round 10-15 years ago gossiping in pubs (as the internet hadn't been invented yet!) telling everyone how Revenue was NEVER going to be bothered chasing them, cause they are only small guys and Revenue had bigger fish to fry.

History has proved them wrong, and will prove you wrong as well. To say that Revenue aren't interested in such cases now is meaningless. You need a crystal ball to look into the future and see if Revenue will be looking at such cases in 5-10 years time. They have pretty sophisticated systems today which will look at average costs/tax revenue within an industry and identify those chancers who are scamming their tax.

And isn't there an ethical issue here - are you recommending tax evasion?

Victor

20LEgend wrote:

If its a company your directors salary will be tax deductible, if its a sole trader any money you take out as drawings won't be.

Not a great way to express it, both incomes are taxable, although they are treated slightly differently.