Income Tax Relief: What You Can and Can't Claim if You're Self-Employed
Self-employment can be a great way to make money and have more control over your own life, but having to manage your taxes yourself can be a headache and a half.
You probably already know that you can claim tax relief for certain business expenses, which can save you a hefty amount of cash. However, knowing what you can and can't claim tax relief on can be tricky, especially if you're new to self-employment.
In today's blog post, I'll run through some of the most common expenses that you can claim tax relief on as a self-employed person in Ireland.
I'll also dispel some of the myths around what you can and can't claim for, so that you can ensure you're not missing out on any deductions while staying legally compliant.
How Does It Work?
As a self-employed individual, you are responsible for paying your own income tax, USC and PRSI contributions. This means that you can also claim tax relief on certain business expenses, which can reduce the amount of tax you have to pay.
You only pay tax, USC & PRSI on your profit, not your sales/turnover. So if you turn over €50,000 but have €20,000 in costs, your profit is €30,000. You'll be taxed and pay PRSI/USC on this €30,000, not the full €50,000.
This is where claiming tax relief comes in. Claiming tax relief doesn't mean that you get the full value of the item back, as some people mistakenly believe. Instead, it means that you can deduct the cost of the item from your taxable profit over a period.
For example, say you're a self-employed graphic designer and you spend €1,000 on a new computer. You can claim tax relief on this expense over eight years, which means that it will be deducted from your taxable profit over eight years.
What Can You Claim Tax Relief On?
Now that I've covered the basics, let's take a look at some of the most common expenses that you can claim tax relief on as a self-employed person.
As I mentioned before, you can claim tax relief on most business expenses. This includes the cost of equipment, office supplies, travel, and even some of your own training and development costs.
Office Equipment
Office equipment includes computers, printers, scanners, and furniture.
But let's say you buy a laptop and use it for both work and personal purposes - what then?
You'll need to estimate how much of the time you use it for work in order to calculate how much tax relief you can claim. For example, if you use it for work 50% of the time, you can claim 50% of the cost as a business expense.
The same goes for phone and internet usage.
Electronic Communications
If you use your personal phone or internet for work purposes, you can claim a percentage of the cost as a business expense. You may purchase an entirely separate phone for work, in which case you can claim the full cost as a business expense.
The same is true for your broadband or mobile data usage. If you use your home broadband for work, you can claim a percentage of the cost as a business expense. You can calculate this by working out how many hours per week you use it for work, and then claiming that as a percentage of the total cost.
Let’s say your broadband costs €50 per month and you use it for work 20 hours per week.
There are 168 hours in a week, so 20/168 = 11.9%
11.9% of €50 is €5.95.
€5.95 x 12 = €71.40 per year.
Professional and financial services
It's certainly advisable that you hire an accountant or bookkeeper to help with your self-employment taxes. The cost of this service is tax deductible.
You can also claim for the cost of other professional services, such as legal advice.
If you have a business bank account, you can claim for the cost of any transaction fees. This might include overdraft fees, credit card charges or interest on business loans or lines of credit.
However, if you use your personal bank account to manage your business finances, you don't qualify for this relief - yet another reason why you need to separate your business and personal accounts.
Staffing Costs
If you have employees, you can claim for the cost of their salaries, PRSI contributions, and pension contributions.
You can also claim for the cost of any training or development courses that you put your staff members on. This includes first-aid training, health and safety courses, and industry-specific training.
Travel Costs
If you travel for work, you can claim the cost of your transport as a business expense. However, the travel must be wholly and exclusively for business purposes.
This includes the cost of public transport, fuel, and parking. You can also claim for the cost of accommodation and meals if you're travelling overnight.
What Can't You Claim Tax Relief On?
In a nutshell, you can't claim tax relief on anything that isn't considered a business expense.
This includes:
Home renovations. You can't do up your home and try to pass it off as a business cost simply because you work from home. If you operate a business out of a commercial premises, you can claim for the cost of renovations there.
Personal travel. You can't claim for the cost of travel that isn't related to your business, even if you sometimes work while you're travelling.
Meals and entertainment. You can only claim food and drink if it's outside of your usual working routine. If you go on a business trip, for example, you can claim for the cost of your meals. But if you entertain clients in a restaurant near your office or place of work, you can't claim that as a business expense.
Final Thoughts
Understanding what you can and can't claim on your tax return can be tricky, especially since there are some grey areas. This is why working with an accountant is a sage investment, because they can help you to ensure that you're claiming everything you're entitled to while staying within the bounds of the law. In the long run, an accountant can save you a lot more than their fee!
We hope you find this information useful and please feel free to share it. If you have any questions, feel free to contact us.
Timothy Kelliher & Company Limited
Chartered Accountants
Phone/WhatsApp: +353 (0) 64 6632105
Email: info@timothykelliher.ie
