Frequently Asked Questions

Since starting the blog I’ve received numerous queries by email as well as those posted in the comments section. For some queries, it was necessary to reply by email to request more information and to protect the privacy of the person asking the question. As suggested by Sean’s comment, I’ve compiled a list of the most popular questions and their answers.

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Q. I’m setting up as a sole trader (office based service business). What can I deduct from my income to my tax calculations? Meals at work? Travel costs?

A. You can deduct any expense wholly and exclusively incurred for the purposes of the trade including:

• Motor expenses for business trips (i.e. a portion of motor tax, insurance and petrol costs) OR bus/tram tickets for business trips
• Subscriptions
• IT equipment (cost is spread over a number of years as a capital allowance)
• IT accessories
• Printing, postage and stationery (e.g. business cards, letterheads)
• Advertising
• Insurance (professional indemnity, 3^rd party etc)
• Professional fees
• Bank charges (for business bank account)

Meals are specifically not allowable. Travel from home to your place of work is not allowable.

Business entertainment expenses are generally not allowable and are defined in the legislation as “entertainment (including the provision of accommodation, food and drink and any other form of hospitality in any circumstances whatsoever) provided directly or indirectly – in connection with a trade”.

The term business entertainment does not extend to the provision of facilities for staff members unless the provision to them of these facilities is incidental to the entertainment of clients. The following link would be useful to differentiate between allowable and disallowable business expenses http://www.revenue.ie/en/tax/ct/deductions.html .

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Q. Can sole traders claim mileage and subsistence?

A. No. Mileage and subsistence schemes are for employees only.

A sole trader should keep a record of all motor expenses (fuel, repairs, insurance, tax) and travel expenses (hotel, train) and include only the percentage which relates to the business in the end of year tax calculations.

However, if you are an employee of your own limited company, for example, than you can claim mileage and subsistence.

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Q. I’m an employee but am thinking of setting up my own business. Can I be employed and be a sole trader at the same time?

A. There is no legal or tax impediment for an individual having an employment and also running a trade.  In fact it is quite commonplace.  For example, a barrister starting out his self employed trade may also be employed by a college as a lecturer.

You will need to register for income tax and possibly VAT (if your turnover is expected to hit the relevant threshold) with the Inspector of Taxes on commencement of the trade.

You will also be obliged to submit an income tax return from now on.  For example if you commence trade in 2010 you should file a 2010 income tax return next year in 2011.

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Q. I am a sole trader and my turnover has significantly dropped. Can I deregister for VAT? What implication does this have – can I still trade under my current business name and not charge or claim vat? Or does deregistering mean that the business completely ceases to trade and I need to set up a new sole trader business and not register for VAT?

If the turnover of your business falls below certain levels then you can cancel your VAT registration. The general thresholds are €37,500 for service businesses and €75,000 for businesses supplying products. (Further details of the VAT thresholds can be found here.)

Once you are sure that your turnover levels are below the threshold and will remain there, then you can complete the necessary sections of Form TRCN1 and send it to your local Revenue office.

If you do cancel your VAT registration, then you can trade as usual and you will still have the same number for income tax purposes and you can keep your business name. However, you can no longer charge VAT on your sales or reclaim VAT on your purchases.

Have a look at my post on cancelling VAT registration for some potential pitfalls.

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Q. Is there any minimum tax that has to be paid per year? Is that true that if you’re self employed you’re not eligible for certain social welfare benefits, as Family Income Supplement?

There is no minimum income tax to be paid per year but there is a minimum PRSI for self-employed people (class S) that much be paid each year – €253.

A summary of the differences in social welfare entitlements for self employed individuals (class S) and those on other classes can be found here. As you can see self-employed people get far fewer benefits than Class A (employees). Reform of the PRSI system is one of the issues being discussed ahead of the next budget, so it is possible that there may be changes to this system in the near future.

Regarding Family Income Supplement, you will not qualify if you are only self-employed, you (or your partner) must be an employee to qualify. More information can be found here.

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Q. Are lone parent payments or back to work enterprise allowance taxed?

* Lone parent payments are taxable
* Back to work allowance payments and back to work enterprise allowance payments are not taxable

Lone parent payments and the back to work (enterprise) allowances are not subject to PRSI.

For other readers with similar questions, there is a useful table on the Citizen’s Information site which outlines which Social Welfare payment are taxable and which aren’t. You will need to check separately to see whether a particular payment is subject to PRSI.

For more information on the back to work enterprise allowance see here.

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