When you are self-employed you have a lot more flexibility in what you can expense. The general guiding principle is that you can expenses anything which you have incurred as a result of engaging in business. Please note there are some exceptions to this which are detailed on the revenue website.
You are probably aware of most business expenses such as travel, depreciation of assets. But if you work full time (8hrs per day x 5 days a week) from home you could expense up to 24% of your rental costs reducing your tax liability. It’s also important to be aware of what you can’t expenses. eg client entertainment.
Working from Home
If you are working from home you are allowed to expense a portion of your rent, internet, heat & electricity costs. It is only advisable to expense rental income and not mortgage payments. It is expected that the proportion of rent & internet costs (fixed costs) that relates to business expenses is much lower than that of electricity and heat (variable costs).
If you are applying a percentage of your rent you need to be able to justify that percentage. eg assume 1 month = 30 days @ 24 hrs per day = 672 hours per month. I work 8 hours a day, 5 days a week x 4 weeks per month => 160 hours per month. This implies 24% of my rent is a business expense. So if my rent is ?1,500 per month this results in an additional costs of ?4,320 reducing you tax liability.
You are most likely aware of the other costs you can expense to reduce you tax liability but we’ll list them here for completeness:
- Professional fees eg accountants, consultants etc
- Travel & Accommodation – Events, meeting potential clients. eg insurance, petrol etc.
- Purchase of assets through depreciation
- Interest on finance costs
- Education & training
- Staff entertainment once reasonable
Costs you cannot expense
- Client entertainment
- Travel to your normal place of work
- Accommodation – unless necessary to stay in a location not near the person’s normal place of work
- Food – A basic need the cost of which does not arise as a result of engaging in business.