A quick overview of what expenses are tax-deductible for businesses and how capital allowances work to reduce your tax bill. Help your accountant reduce your tax bill by keeping good records!
Any expense which is wholly and exclusively for the purposes of your business is an allowable expense for tax purposes except for food and drink (I have done a separate blog post on that) and business entertaining expenditure.
But what does it actually mean? An allowable expense is where a business can deduct these expenses from their sales figure which gives the profit. It is this profit on which your tax is calculated so all expenses directly reduce the amount of tax paid.
Some examples of allowable expenditure:
- Accounting and any other professional fees paid in the course of doing business
- Any costs associated with running your business including marketing, advertising, website development, graphic design
- Any payments concerning renting, electricity, heating, phone, rates, repairs relating to your business
- Costs of running vehicles or machinery related to the business
- Purchases of any goods for resale
- Interest paid on loans used to finance business expenses
- A portion of domestic expenditure such as running costs associated with a private vehicle, rent, electricity, heating, phone and other domestic expenditure may be allowable as a business expense where the business is run from home. Only the portion relating to the business is allowable.
There is no master list of what is allowable but the main thing to bear in mind is that it is wholly for business purposes. Further details can be found on the Revenue website here.
A capital allowance is a deduction you can get on any capital expenditure which is for the business. Capital expenditure includes land, buildings, plant, machinery, motor vehicles, computer equipment such as laptops etc. Instead of putting the whole item into the accounts as an expense, it needs to be recorded as a capital expense. This is then taken into the tax computation at 12.5% per year for 8 years.