Tax Deductible expenses for Sole Traders, What are they?

When calculating your tax bill you may be able to use expenses as a tax deduction.

When calculating your tax bill you may be able to use expenses as a tax deduction.
Any expense must be directly related to the running of the business in order to qualify for deduction in your income tax return. This can cause confusion when a mobile phone or computer may be used for both business and personal use. You may be able to claim a percentage of the use against the business.
Your car may also cause confusion, a percentage of the running costs may be used as a deduction and only mileage for traveling during the course of the business can be used.

What expenses can I claim as a self-employed person or sole trader?

Allowed expenses - day to day running costs

Specific disallowed expenses

Commuting - Travelling to and from work is not allowed as an expense.
Your own pay
Food and accommodation (shelter) are classed as basic needs and therefore out with the class of deductions.
Clothing - normal clothing used for work cannot be claimed.
Charitable or political contributions cannot be claimed.
Repairs
Interest on late payment of Tax
Other tax charges - i.e. parking fines, stamp duty etc.
There are some exceptions to the rules above

Equipment and Furniture Expenses

Equipment and furniture expenses are allowable business expenses for self-employed individuals in Ireland. These expenses can include the cost of purchasing or repairing equipment, such as computers, machinery, or vehicles, as well as furniture and fixtures for business premises. Capital allowances can be claimed on the acquisition of equipment, which allows for a tax deduction spread over a number of years.

To claim equipment and furniture expenses, self-employed individuals must keep records of the purchase or repair, including receipts and invoices. The business use percentage of the expense can be claimed, and it’s essential to apportion the cost correctly to avoid disallowance by the Revenue Commissioners.

Motoring Expenses

Motoring expenses are allowable business expenses for self-employed individuals in Ireland who use their personal vehicle for business purposes. The business use percentage of the expense can be claimed, and it’s essential to keep records of the mileage and expenses incurred. Motoring expenses can include fuel, repairs, servicing, and insurance costs.

To claim motoring expenses, self-employed individuals must keep a mileage log to record the business use percentage of the vehicle. The log should include the date, mileage, and purpose of each journey. The business use percentage can be calculated by dividing the business mileage by the total mileage.

What does this mean?

The rule of thumb is that if you incurred expenditure that is wholly and exclusively for the purpose of (for example) providing physio services (e.g. indemnity/insurance, equipment, commercial rent, website costs, motor costs, training/education, accountant fees, courier costs, stationary, etc.) then you can deduct it from your gross income figure to determine the amount which will be subject to income tax in your self-assessment tax return. If you are planning on working from home, then a portion of your electricity/phone/internet bills will be allowable as a tax-deductible expense. You may also be interested in reading our payroll guide for small businesses.

Understanding tax deductible expenses is very valuable

Just to give an example: if you bought a website for personal use (i.e. a blog), and you paid €2,000, you would have to earn €2,500 gross income to pay for that website (Gross income €2,500; No deductible expenditure as website is for personal use, taxable income = €2,500; Assuming lower rate of tax at 20% = €500 tax payable, and you receive €2,000 into your hand to spend on the website). Now, if the website was for self-employed business use, then you would be allowed to deduct the cost of that website from your gross self-employed income BEFORE calculating your tax liability – this in effect saves you €400 in tax. (Gross income €2,500, less deductible expenses of €2,000 = taxable income of €500, tax payable at 20% = €100).

If you are not able to vouch for expenditure (i.e. invoice or receipt, proof of payment) then it will not be an allowable deduction when it comes to calculating your tax liability. It is generally a good idea to keep track of all income and all business purchases in an excel workbook throughout the year, and keep all relevant invoice/receipts organised in a folder. See our guide to filling out a form 12 as well.