Top tips for the self-employed

In this week's column, tax expert Lynda Lawlor of The Tax Department talks us through self-employment and getting the most from our taxes.

by Lynda Lawlor

DON’T FORGET - TAX RETURN DEADLINE IS 31^st OF OCTOBER... Just around the corner!

Whether you're only just starting out in business or you've been established for a number of years it’s worth taking some time out of your undoubtedly very busy schedule to take a step back and see are you getting the most out of the tax system and is your business structured in the most tax efficient manner.

In these difficult times, every little bit helps and by making some minor changes you make significant tax savings.

Should you employ a spouse in your business?

If you are married and your spouse is not working it maybe possible to pay your spouse a salary from the business to maximise the use of tax credits and 20% rate band. However, its not just simply a case of giving your spouse a salary, it should be reasonable and they must actually earn it i.e. work for it. However, in most businesses the spouse will have some involvement anyway.

Can you claim tax free travel and subsistence?

Mileage and subsistence schemes are for employees only, a sole-trader can only claim a percentage of all motor expenses (all running costs – fuel, repairs, insurance & tax) and travel expenses (hotel, train). You will need to keep all the receipts for these costs, so be careful and don’t lose them.

The amount you can claim is the business element of the overall costs. Be realistic, Revenue are not going to believe that you use your car 100% of the time for business.

Do you work from home?

If you are working from a home office or even spend some of your time working from home, make sure you are claiming a percentage of such expenses as home broadband, telephone, gas and electricity. Again be realistic about the percentage you claim.

Considering making pension contributions?

While pensions have gotten bad press over the last few years, making a pension contribution will reduce your tax bill and is always worthwhile considering. However, financial advice should be sought before making a decision.

Have you got a book-keeping system?

Take a step back and review your book-keeping system. How organised are you?

It may be worth asking your accountant to review your systems to make sure it is as streamlined as possible, no one likes dealing with the paper work but having an efficient system in place can save you countless hours.

Do you have a dedicated business account and a business credit card?

By having all your business income and expenses going in and out of the one account, it makes it much easier to see where your business stands.

A business credit card is a useful way of paying for business expenses, as it means all business expenses are recorded in the one place. Paying for business expenses in cash should be avoided as much as possible as it means you don’t have a record of the payment.

All receipts and invoices for all businesses should be kept and in the case of credit card expenses, you should ideally staple them to the credit card statement.

Make sure you know how to use the Revenue online service (ROS). The ROS system is very user friendly;  you can file your returns, pay any taxes due and access all details of your taxes via ROS. If you haven’t registered for ROS you should do so at www.revenue.ie – ROS login.

Should you operate through a limited company?

A limited company can be a very attractive option for some businesses, the corporation tax rate for trading profits is 12.5%, a company can make significant pension contributions for company directors, travel & subsistence expenses can be paid.

However, the decision to operate your business through a limited company shouldn’t be taken lightly as the obligations of directors to comply with company law are very strict.

Probably the first question you should ask yourself is whether you need all of the income generated by the business to live on, if you do then you may be better off operating as a sole-trader.

They may be other considerations which may make a limited company a better option for you, such as the need to have limited liability. If this is crucial to you then that may be a good enough reason to set up a limited company. If you don’t need all of the income of the business to live on, then you could use the surplus to make company pension contributions, which is a very effective means of saving tax.

In addition, in recent times, more and more contractors are being effectively forced into setting up limited companies to operate their businesses through, as the companies they are working with are insisting on the contractors operating in this manner.

If you do operate through a limited company you should ensure you file all your CRO returns on time in order to be able to avail of the audit exemption, as fees paid to accountants for an audit can be expensive.

If you aren’t sure you are claiming all the business expenses you should be or you are considering setting up your own company, why not contact me or one of my team to discuss your own personal situation.

DON’T FORGET - TAX RETURN DEADLINE IS 31^st OF OCTOBER... Just around the corner! If you have tax questions or are confused about your tax issues this year, contact us. We’d be delighted to help. Please contact me at Lynda@thetaxdepartment.com or contact me on 01-8527784

Lynda Lawlor, BBS FCCA AITI, is Tax Manager at The Tax Department and is a fully qualified accountant, a member of the Irish Taxation Institute and  a Registered Tax Consultant.

Lynda has previously worked as a Tax Partner in a top twenty Accountancy firm and has almost 20 years experience in providing clients with solutions to their taxation issues. Lynda specialises in providing tax planning services to our clients, but has vast experience in providing tax and accounting services.

For more information, check out www.thetaxdepartment.com