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, 3rd 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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NEXT STEP:
If you have a query that isn’t covered on the blog, please email me on blog@parfreymurphy.ie or leave a comment below.
Hello,
I am self employed and have been since 2004. I was lucky enough to keep working and also to get a good contract at the end of this year brining my invoice turnover to €500,000.00 This contract is due to be ongoing into 2011 as they are happy with my work. Should I now set up as a limited company or stay self employed. I read a review that said there is a tax anomaly whereby self employed earning approx €500,000 would be better off in 2011 ?
Hi Eamon,
Thanks for the comment and well done on getting the contract!
You are right, there is a tax anomaly relating to the new universal social charge. However, I would need to review your circumstances fully before I could recommend whether you would be better off in a company.
The main advantage of being in a limited company is that any excess profits are taxed at 12.5% rather than at the income tax rates, so it is definitely worth considering. Remember you will also need to take into account the transfer of the trade from your sole trader business to a new limited company which will need to be done properly from a tax point of view.
If you want to discuss in more detail in the New Year, drop me an email or call me on 021 4310266.
All the best,
Seamus
PS: For those of you interested, details of this anomaly can be found here
Hello,
I have recently cashed a fixed deposit investment account with EBS who took 27% dirt tax even though only 25 days were in 2011. There answer to my complaint of a retrospective tax was that all instituitons do this and the that the INTEREST is only applied on the last day even though they had the money for 12 months.
I was not aware that you can apply a retospective tax.
Your help would oblige.
Aidan Smyth
Hi Aidan,
In general DIRT is deducted on the day that the interest is paid to you regardless of how long the interest was accruing. DIRT is deducted at the rate prevailing on that day. However, you should check your account’s terms and conditions in respect of when interest is earned and paid and when DIRT is applied.
Check the Citizens Information site at http://www.citizensinformation.ie/en/money_and_tax/tax/tax_on_savings_and_investments/deposit_interest_retention_tax.html
to see if you qualify for DIRT exemption.
Best regards,
Seamus
Set up as a sole trader but have a state pension so will i have to pay tax on all my earnings with my company or do i get a tax free allowance for the company
Hi Denis,
Thanks for your comment. Can you clarify whether you are trading as a sole trader or through a company?
Best regards,
Seamus
Hi Orla,
Was looking through your website lots of info available on it!! Just a quick one, my husband was a carpenter due to lack of work in 10 he started a paye job. He is now full time paye and part time carpenter. He is still registered as a sole trader and we submit a form 11 each year. Is there any restriction on him offsetting losses to his paye salary? We have done this for 2010 return and will do again for 11 return. How long can we do this for? Is there any other restrictions I should be looking out for?
Thanks
Cathy
Hi Cathy,
Loss relief is granted to a person who, in carrying on a trade, profession, vocation or employment, sustains a loss during a year of assessment. The loss is deemed to first reduce the earned income of the individual e.g. PAYE income and then the unearned income of the individual e.g. rental income. The claim to obtain the relief must be made within two years of the end of the year of assessment to which the claim relates.
The full amount of the loss must be claimed in the year of assessment to the extent that it can be absorbed by the taxpayer’s gross income. For example is it not possible to use only part of the loss and leave sufficient income to be covered by tax credits.
Where relief cannot be fully utilised in the year of assessment the remainder of the loss can be carried forward indefinitely and offset against any future trading profits. It should be noted that only current year losses can be offset against other income in a year of assessment. Therefore if you were unable to fully utilise a loss in a year of assessment and carried it forward to the next tax year this loss can only be set against trading profits.
If you require any further information please do not hesitate to contact us.
Regards,
David.
Dear Orla,
First things first, great blog! It’s great to see such an informative Irish blog. Anyways, as I was trying to find information on my predicament I came across this post- https://parfreymurphy.ie/registering-as-a-sole-trader/
I have read over it but my particular situation is a bit complicated – bad timing really. I’ve been researching for a while now generating a passive income online through various niche websites. I have bought two domains and plan on buying another few. Basically my query is this; I’m currently in full time employment, minimum wage, so before I start making money from any of these sites I want to register as a sole trader…….. but my real problem is I’m planning to quit soon to immigrate. I was just wondering two things…, 1) What happens if I register as a sole trader to my current address (my mother’s house) and then immigrate? 2) I do pay tax at the moment but if I register as a sole trader operating under “affiliate marketing” which tax band do I fall under?
I don’t know if this makes a difference but the majority of my business will be from American conversions. Sorry about the length but I do hope to hear from you as can’t really afford legal advise. Anyways,
Thanks in advance
Bryn Faithfull
P.S. You should really look into Google adwords or private advertising. Just this site is very helpful and has quality content so conversions should be easy
Dear Bryn,
Thank you for your comment.
Yes, you are obliged to register for tax purposes with the Irish Revenue Commissioners while you are tax resident in Ireland and operating a relevant trade here. If you immigrate then depending on your Irish tax residency (i.e. days in and out of Ireland in a tax year) then you may or may not be liable to Irish taxes on your sole trade income. If you become non Irish tax resident and are operating your sole trade abroad i.e. outside Ireland you may not be liable to Irish taxes on same. If you are operating as a sole trader abroad you will need to consult a tax advisor in that country to advise you on your tax liability there.
As regards your “tax band” a single individual can earn income up to €32,800 in 2012 and pay income tax at 20% on this income, any income earned over €32,800 will be taxed at 41%.
If you require any further assistance please do not hesitate to contact me.
Kind regards,
David
What is the most tax efficient way for a farmer to pass on his land to his children?
Hi Thomas,
Thank you for your comment.
There may be some options available to you in passing on land to your children, but this will be dependent on your age and a number of other conditions. If these conditions are met, retirement relief may be available to you. You may need to bear in mind that your children may have exposure to CAT (capital acquisitions tax) depending on the value of the land transferred compared to the relevant CAT threshold in force at the time. Stamp duty and VAT may also need to be considered.
We would need a better understanding of your position to advise you any further. Please get in contact with us should your wish to discuss your options further.
Kind regards,
David
Hi
Quick query
I am currently building a website which i intend to use to carry on a trade probabaly some time in 2013. At moment i have a few small expenses such as pictures, domain registration etc.. which i am incurring on an ongoing basis. I understand that once i commence the trade i can write off these expenses against profits as long as they were incurred within a 3 year period of commencing.
My question is
I have not sent in the TR1 form as of yet as i don’t see the point in doing this until tme is close enough to when i begin trading.
Does this mean that i can’t claim match those expenses which are related to the trade incurred before i send in the TR1 form?
Thanks
John
Hi John,
Thank you for your comment.
You are correct in stating that you can claim any expenses incurred in the three years prior to commencing trade as long as they are wholly and exclusively for the purpose of the trade you will carry out. I would ensure that you keep a record of all these expenses and all back up documentation relating to same.
I would not imagine that you would need to have submitted the TR1 and have registered as a sole trade to claim these expenses.
There are a number of other issues that you may need to consider when starting your business and I have emailed you directly regarding these.
Kind regards,
David.
Great site : ) one question that i can’t decide on. Starting a new business in march ’13 on the back to work scheme and have registered limited company name with the cro and the .ie domain name. My question is regarding sole trader v’s ltd company. My business will be consulting in the club, hotel and bar industries and i will be using 8 other consultants to work with me depending on what area needs working on. I will be taking a wage from company per week. Since i have set up the ltd company already is this the best way to go or will i just use a t/a name and drop the ltd part from the name. Will this mean that i will have to return 2 end of yr reports even though the ltd company wont be getting use if i go down the sole trader route?
any ideas?
cheers in advance
Hi Barry,
Thank you for your comment.
Setting up a new business always raises concerns so, to start, I would suggest you read our article on Startup Business Structure.
The differences between trading as a sole trader and as a limited company are summarised on our blog post Sole Trade v Limited Company but the main issues would be liability and taxes.
As a sole trader, you would be personally liable for all the liabilities of the business where as a company structure would allow you to operate the business while retaining limited liability. Should you decide to go down the Sole Trade route, you would need to register as a sole trader and register personally for VAT, and PAYE/PRSI. You would be required to file an Income Tax return each year with the Revenue Commissioners and pay Income Tax on any profits the business makes and, depending on your personal circumstances, this could be as much as 52%. As a company, you would need to register for VAT, PAYE/PRSI and Corporation Tax and submit a return once at year, incurring tax at a rate of 12.5% on any profits it makes. As you can see, there could be a significant tax saving to be made!
As you have already set up a limited company, we would suggest that you follow this route for your venture as, even if you opted to trade as a sole trader at this stage, you would still be required to file all company documents and Financial Statements with the CRO. This would be irrespective of whether the company actually trades during the year and thus would be an additional and avoidable expense if you were to trade as a sole trader.
Should you require any further information or assistance in setting up your business, please get in contact with us on 021 431 0266.
Best of luck with your venture!
Kind regards,
David.
Hi,
Thanks for this blog and FAQ – it’s a fantastic resource! I have a question with regard to deductions for sole traders: I’m registered as a sole trader, and I work from home, which is a privately rented apartment. Can I claim some of the rent as a business expense? And if so, what percentage would be appropriate? Thanks so much,
Justine
Hi Justine,
Normally when a sole trader is renting private accommodation the ‘Rent Tax Credit’ is claimed, provided you were renting a property on 7 December 2010, on their tax return. Additionally the sole trader would claim a portion of light, heat, telephone and internet expenses incurred provided they were used in some way for business purposes.
If you wish to claim a portion of the rent on the apartment we would not recommend you also claim the ‘Rent Tax Credit’. You should determine which will be more beneficial to you. The percentage of the rent that you should claim would be depended on the level of work you do from home and maybe even the space you use in the apartment to conduct the running of your business. For example: if you are renting a 3 bedroom apartment and use one room for your business then a third of the rent would be reasonable.
For more information on the ‘Rent Tax Credit’ see Leaflet IT1.
Kind regards,
David.
Hi
Just have a quick question. I’m registered as sole trader running business 2 years and also I’m part time employee. I haven’t any profits at the moment. Do I need to pay min PRSI of €253 each year or I’m covered by my employer who is paying PAYE/PRSI for me?
Hi Christian,
PAYE/PRSI for a sole trader is charged on the profits that you make during the period. Therefore as you are not making any profits you will not liable to pay any PAYE/PRSI. Therefore, the only PRSI contributions that you will make will be those deducted from your salary by your employer.
Kind regards,
David.
Can rental loss be off set against directors paye income
Mary
Hi Mary,
Rental losses incurred on property in the State can only be offset against any future rental profits from property in the State. Therefore, rental losses cannot be offset against non-rental income e.g. PAYE income.
I would suggest having a read of leaflet IT 70 – A Revenue Guide to Rental Income.
Kind regards,
David.
Hi,
My questions doesn’t seem to be addressed anywhere that I can locate … and apologies if it is! My husband has always had my tax free allowance as he was always the consistent earner, now however, as of Oct 2012 I have started up my own vocal coaching business which is still in its early stages and Im not taking a wage as so far I just seem to be making enough to float the business costs, nevertheless it will get better! As Im still paying for advertising and various resources and equipement. My question is this….Do I pay tax if I cant even afford to pay myself a wage? My husband obviously pays the bills mortgage etc as has been the case! So at present our circumstances are not very different than before I became a sole trader!…Any light on this is greatly appreciated!….Kathy
Hi Kathy,
Thank you for your comment.
Once you commence your own business you are required to register as a sole trader using TR1. Any profit/loss the business makes during the year is taken as the basis for calculating your Income Tax. Essentially, if you make profits you will pay tax and if you make losses you have the option to offset this loss against other income earned and in turn be due a tax refund. As you and your husband appear to be jointly assessed for tax purposes, there will be no issues with him having your tax free allowance as it is your joint income that will be the basis for your tax liability.
Best of luck in your new venture and if you require any assistance please get in contact with us.
Kind regards,
David.
firstly fantastic blog..great to have somwhere to ask questions and get answers..
my question is i have been sole trader for number years however last year went into partnership with friend and set up limited company.my question is i have to tak several days off from soletrader job to tend to ltd compnay business can i claim expenses for this .also ltd company office is in my home (for now)i claim small expenses for this bit but other partner has to travel distance to atten meetings etc here and therefore claims lot of travel which he is entitled to. however he also claims 10hr daily allowance can you explain this to me and can i also claim same for atending these meetings even though they take place in my residence.Any help appreciated
Hi Michael,
Thank you for your comment.
I would recommend that you read our blog post on mileage and subsistence which outlines the basic rules in claiming mileage. To be eligible to claim any mileage you will need to be away from your normal place of work.
As you are taking time out of your normal work to attend to the company I would suggest maybe taking a small wage from the company. As the company is operating out of your home it may be possible to charge a portion of light, heat, telephone and Internet expenses to the company each month.
Kind regards,
David.
Revenue IT70 says you can claim capital allowance on the central heating system in a new build rental property. I visited various forums and there is a lot of debate over it not being a fixture and fitting in it’s true sense. Wanted another opionion on it before I made a return?
Hi Michael,
Thank you for your comment.
It appears from our research that capital allowances can be claimed on central heating systems in a newly built rental property.
If you require any further assistance please get in contact with us on 021 431 0266.
kind regards,
David.
Hello
I am an Irish national living in Europe, and recently agreed to a contract with two companies to offer business development consulting services. I have decided to relocate this business to Ireland, as I have found some partners locate there and it makes sense. I am now in the process of the formation, but unfortunately find too much contradictory information on the web…and I would like to get my facts right.
· Taxes: I understand that I will pay 20% on the first 32.700€ and 41% thereafter. Are there other taxes I will need to accrue for. Is this based on Income?
· Do the taxes give me any rights there to for example dole should I become unemployed?
· VAT: I anticipate a revenue of approx. 50k€ for the first year. How much VAT do I have to charge?
· Property: I have a loss making rental property in Ireland. Would it make sense to include this as part of this business? I.e. as a cost?
· Process: What is the process for registering etc and what forms to I have to fill out
Best regards
John
PS: Excellent site
Hi John,
Taxes: There is PRSI at 4% and USC of up to 7%. I am assuming this income relates to salary from the company.
If you are a propriety director and control more than 51% of the company then your PRSI class may be Class S which only entitles you to the State pension, Maternity Benefit and the bereavement grant.
No the rental property should not be included. Even though the rental property is loss making you are required to file Income Tax Returns for this property on an annual basis and also maintain PRTB, NPPR and LPT registrations.
To register a company with the Revenue Commissioners a Form TR2 must be submitted.
If you have interested in forming a company please forward your details to us and we will contact you to discuss same.
Kind Regards,
Maria Fahy
can you confirm that the tax limit of €200,000 is applicable to both a redundancy lump sum and also a retirement lump sum?
thanks
Yes, the tax limited of €200,000 is applicable to both a termination payment and also a retirement lump sum
Hi I hope you can answer following question !
My husband was made redundant some years ago which was bad enough and then their “pension” went belly up which I’m sure you will agree is a disgrace …. The pension has been frozen for some years and …. it is now winding up , there is lump sum offered , he also has AVC’s .
question is will these payments be liable for tax
He is not eligable for any unemployment benefit and is unemployed as he is means tested and my pension is just over the threshold !
He Also signed a waiver to receive a tax free lump sum when he was made redundant so taking this into consideration can you advise on tax implications please
Any information would be appreciated .
hi ,just reading through your blog and it a blessing ,im sole trader starting up new buisness , iv regestered for vat and im looking at rental options for fitness studio and im gonna have to fork out quite alot can i claim any rent back through tax ? im gonna be starting out on enterprise allowance ,thanks
Hi Brian,
Provided the rented premises is used for your business then you will be able to claim a deduction in your annual accounts in respect of any rent paid for the use of the premises.
Kind regards,
Cathy
I’m being made redundant. I have old age pension. If I set up as a Sole Trader can I behired to do some work
for my former employer.
Hi Aileen,
Thank you for your query.
Please review Revenue’s Code of Practice for Determining Employment or Self Employment Status of Individuals on http://www.revenue.ie/en/practitioner/codes-practice.html as Revenue may deem that you are not a sole trader but in fact still an employee of your employer. This may be particularly relevant if you change from being an employee with your employer to a sub-contractor.
If you have any further queries please do not hesitate to contact our office on 021 4310266.
Kind regards,
Cathy
Hi there, so good to find this blog, I have been searching for a couple of weeks for answers to my concerns…. I have a bit of a hairy one for you…. myself and my partner sub leased a food & beverage business for the summer, we paid our portion of rent/rates and insurance to the current lease holder (who is not the owner of the building) and will trade under the leaseholders business name. The lease holder has 3 businesses in total registered under the same company name but trading under 3 different entities. The building we rent is also used by the lease holder in part for one of his other business. we were responsible for paying all operational costs for our side of the business, i.e purchases, wages etc, there was no funding from the lease holder at all. We did not take a wage and will receive a % of the profits. After sales VAT and employee payments have been paid to revenue we will run at a loss which we will have to fund personally between us. Because we ran at a net loss, are we able to claim back for the costs we incurred for some of our expenses…. i.e gas/electricity/kitchen equipment that were necessary to run the business and if so at what rate. I see that these expenses are tax allowable but i cant seem to find an explanation as to how much/what value/percentage we can offset against our loss. More importantly, what we dont want to find out in the future is that the lease holder used any reliefs due to our business entity to offset his own income on his other businesses whilst demanding we pay back the losses incurred on our business to get back to zero. Really appreciate your help on this one.
kind regards
Ann
Hi Ann,
Thank you for your query.
Expenses are fully tax deductible once they have been incurred wholly, exclusively and necessarily for the purpose of the trade. If the expenses have been incurred for the purposes of the trade carried out by you and your partner the full amount may be available as a deduction for tax purposes.
Kind regards,
Cathy
I work full time for an engineering firm and the workers have to be equipped with tools for their job. I’m just trying to find out if I can claim tax relief for the cost of tools. Thanks .
Dylan,
If you are talkiing about general loose tools that are easily lost,misplaced or stolen you can write them off in your annual accounts and thereby reuce your taxable profit and of course tax.
Seamus
Hello,
I am employed full time, but have been offered an consulting project outside of my current employment for a charity. The remuneration would be small (less than €2,500). What are my tax obligations? Do I charge the charity VAT for this service?
Thank you,
Lauren
Lauren,
You should declare it in your tax return but no need to register/charge VAT.
Seamus
Hello,
I was just wondering if you could help me with some advice. I am a sole trader, and i would like to buy a second hand car from private seller . How will that be registered in the accounts ? Being private will not be a receipt and the car would be used to drive to and from work, my shop being in a different town than where i live. Will there be any tax for it to the revenue?
Kind Regards,
Michaela