The question every contractor wants to know is ‘What expenses can I really claim?’
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Revenue Commissioners have been clamping down on contractors over claiming expenses in their accounts and tax returns and are implementing serious penalties for those involved.
Those selected for audit are typically showing high levels of expenses. If selected for audit on that basis, the opening position of Revenue is that deliberate behaviour is suspected and therefore higher penalties will be sought.
However, the levels of expenses can also be genuine – and should result in no additional taxes or penalties and/or over claiming can be due to innocent behaviour, technical adjustment and careless behaviour, resulting in lower penalties.
So, what expenses are allowable?
In general, costs incurred wholly and exclusively for the purposes of the trade/profession are allowable. Some of the common costs and expenses are listed below.
- Company Insurance
- Accountants Fees
- Administration costs, print, post and stationary
- Bank Charges
- Certain Travel and Subsistence Expenses
- Professional Development costs (CPD, training courses etc.)
- Company Office Filing Fees
- Wages and Salaries
- Rent, Light and Heat
However, below are some of the more common expenses that are now being queried or challenged by Revenue:
Travel and Subsistence Expenses
It is important to note that expenses cannot be claimed for travel to and from the ‘normal place of work’. If a contractor undertakes the most part of his/her work in one particular clients’ office, the cost of travel to and from the place will not be allowable.
Business journeys are allowable expenses – this is where a contractor travels from one place to another to perform duties of employment but where it generally involves a temporary absence from the normal place of work.
Similarly, the subsistence claims will only be allowable in situations where the contractor is on a business journey away from his/her normal place of work.
The rates of mileage depends on the engine size of the vehicle and the amount of business mileage per year as outlined below
Motor VehiclesHere are the bands for tax deductible expense for use of motor vehicles
|Distance/Engine Capacity||1.2 litre||1.2litre to 1.5 litre||>1.5 litre|
|Less than 6,438km||31.12cents||46.25cents||59.07cents|
|More than 6,438km||21.22cents||23.62cents||28.46cents|
Domestic Subsistence Rates - Overnight AllowancesMaximum (Tax Free) subsistence rates are based on the civil service rates as outlined below.
Domestic Subsistence Rates - Day Allowances
|Normal (10+hrs)||Reduced (5-10Hrs)|
Wages and Salaries
Wages and salaries are allowable expenses as long as the person being paid for the wage actually carries out duties or provides services for business purposes.
For example, if family members of the contractor completes administrative duties such as bookkeeping, he/she would be entitled to be paid and a deduction will be allowable in the accounts and for tax purposes. Payment should be reasonable and reflect the expected rate for such duties or services.
If pay is for technical work carried out, then the person that is being paid for the work should be qualified in that area. For example, it would not be reasonable to pay a spouse for ‘software development’ services if he/she is not qualified in that area.
Also, a family member may be a director and or company secretary of the company and would be entitled to be paid a fee for doing so. Again this would be an allowable deduction for tax purposes.
If services or duties are not performed, however, then the amounts will be taxable.
Rent, Light and Heat
Rent, rates and light and heating expenses are allowable in cases where a contractor rents a premises in order to carry out his/her duties.
Claiming an expense for rent, light and heat will not be allowable in cases where amounts are being paid simply for the individual’s home. Clearly in this case, the expense is not ‘wholly and exclusively’ for the purposes of the business.
However, if a contractor is required to perform a significant portion of his/her duties from home and has an office from which to operate, then it would be arguable that a portion of the rent, light and heat should be allowable as business expenses.
Now check out our Ultimate Guide to Contractors’ Company Options and Tax Saving Structures
Note: The Irish Tax Institute have raised issues and concerns to Revenue Commissioners and the formal responses in relation the contractors project can be found in the embedded document below.
For more information contact Liam Burns at (01)5677380
Provider of accountancy and taxation services to contractors ensuring efficiency and compliance and catering for individual needs on a one-to-one personal basis.
Response From T Buckley Re Contractors' Submission – Nov 2013