Top 50 Self Employed Income Tax Return Answers
Answered by our Tax consultants in an easy to read question and answer format.
Click below for lists of other TOP 50 tax questions. A more detailed tax library is available here: Tax Library
Q1. I have started Self Employment. What do I have to do about tax?
You must register as a Self Employed person with the Revenue by completing Form TR1, available on the revenue website.
Q2. Do I have to register for Vat?
You do not have to register for vat if your sales turnover is below certain limits. If you are providing services the limit is €37,500 and if you are selling good the limit is €75,000. If your turnover exceeds these limits for any 12 month period you must register for vat.
Q3. Is there a special tax exemption for the Self Employed?
Yes there is a Start Your Own Business income tax exemption that provides a relief from tax up to a maximum of €40,000 per annum for a period of two years. This special relief is only available to individuals who start up a new business during the period from 25’th October 2013 to 31st December 2018. Prior to starting up in business you must have been unemployed for at least 12 months and in receipt of Social Welfare benefits. The exemption does not cover PRSI or USC payments.
Q4. Should I register as an employer?
Only if you are going to take on employees and if so, the same Form TR1 deals with this as well.
Q5. What do I pay tax on?
You pay tax on your profit for the tax year.
Q6. How is Profit calculated?
In broad terms it means Turnover- (Ongoing Expenses + Annual Fixed Assets Claim) = Profit
Q7. What is Turnover?
Turnover is the total of your sales invoices for the year adjusted for work-in-progress (WIP) and opening/closing stock values. Special rules apply for valuing WIP and stocks.
Q8. What does Ongoing Expenses mean?
This means all the ongoing costs that you incur in running your business on a daily basis e.g. rents for business premises, phone bills, motor expenses, employee salaries, insurance etc.
Q9. What does Annual Fixed Assets claim mean?
If you buy a fixed asset e.g. a car, computers e.g. large cost items of enduring benefit. This is a Fixed Asset for tax purposes and the cost is allowed over 8 tax years e.g. a claim of 12.5% per annum for 8 years.
Q10. What are Drawings?
This is what you pay yourself out of the business. You pay tax on the amount of your profit and not on the amount of Drawings you take from the business. However you have to tell the Revenue how much they are so that the Revenue can see you have enough Drawings to live on.
Q11. How do you calculate Profit for a tax year?
You have to prepare a Profit/Loss Account for a 12 month period ending in the tax year. Our systems will do this for you.
Q12. I only started Self Employment during the year so how do I prepare 12 months account for my first year?
There are various options here but the simplest one is to prepare accounts from when you started to the end of the tax year e.g.: Started on 1st July then prepare Profit and Loss Account from 1st July to 31st December for your first year.
Q13. How do I pay my tax?
Once a year every October under the Self Assessment tax rules.
Q14. How often do I have to send in a tax return form?
Once a year every October under the Self Assessment tax rules.
Q15. What happens if I do not pay my tax on time?
You will be charged interest on late payment.
Q16. What happens if I am late sending in my tax return form?
You will be charged a penalty equal to 10% of the tax due for the year.
Q17. Do I have to pay PRSI and if so how much?
Yes, you pay PRSI on your profit as part of your tax payment. PRSI is at a rate of 4%.
Q18. Do I have to pay the USC (Universal Social Charge) levy?
Yes, you pay the USC as part of your tax payment. The rate depends on the amount of your profit.
Q19. What are the USC (Universal Social Charge) rates for 2018?
0.5% on the first €12,012 of your profit,
2% on the next €7,360 of your profit,
4.75% on the next €50,672 of your profit
8% on the balance.
If your non-PAYE income is more than €100,000 a year there is an adnditional USC surcharge of 3% on income above €100,000 .
Q20. I work from home. Can I claim my mortgage as a business expense?
You could claim part of your mortgage interest as an expense based on the amount of space used in your house as an office. However, you could be reducing the benefit of the capital gains tax exemption for your private home so this matter needs to be carefully considered.
Q21. When working from home how do I claim for Light and Heat if not separately billed?
Separate billing is not required provided a reasonable amount only is claimed as a business expense having regard to the nature of the business.
Q22. Can I claim for home phone rentals and calls?
Yes. However we recommend that you obtain separate lines for business use and then the full cost can be claimed as a business expense. Otherwise if you use the house phone for business you can claim a fraction of the bill based on how much you use it for business.
Q23. Can I claim the cost of Office Furniture and Equipment for tax purposes?
Yes, subject to the normal rules i.e. the cost is allowed over a period of eight years.
Q24. Can I charge a rent for the use of my house?
If the house is owned in joint names and you carry on business in your sole name then the answer is yes, but it must be a reasonable rent having regard to your circumstances. Remember that the rent received is subject to tax under rental income rules. Generally speaking a rent is not charged for use of one’s house.
Q25. If I run my business from home and I sell the house will I pay capital gains tax on the sale?
You may have to pay capital tax if you sell your house at a profit in proportion to the amount of space used for business purposes. This is an important matter that needs to be kept in mind when running your business from home. The benefit of either claiming mortgage interest relief as a business tax deduction (as distinct from the normal tax relief for mortgage interest) or of charging a rent for the space used needs to be weighed up against the Capital Gains Tax exemption for selling your house.
Q26. If I benefited from the owner-occupiers stamp duty relief when buying the house is there a problem in running my business from home?
Assuming the business is of a minor nature and you do not charge a rent for the use of same then in practice there should be no difficulty.
Q27. I rent an apartment and run my business from it. Can I claim the rent as a business expense?
Yes, based on how much of the apartment is used for business e.g. using 50% of the apartment as an office then claim 50% of the rent as an expense.
Q28. I use my car for business purposes. How do I claim tax relief for it?
There are two separate tax claims. One for the annual running expenses (ongoing expenses) e.g. petrol, tax, insurance, repairs etc. and the other for the capital cost of the car as a Fixed Asset.
Q29. How much of the annual running costs can I claim as a tax deduction?
You claim is based on the percentage business use of the car e.g. Total annual running costs €5,000 Business Use 75% Tax claim for €3750 (€5,000 x 75%)
Q30. I paid €30,000 for the car in 2018. How much of this can I claim?
The limit for cars is €24,000 and you can claim 12 ½ % (1/8th) of this figure multiplied by the percentage business use of the car. Example- Car cost €30,000 Limit €24,000 = Annual Claim € 3,000 X (% Business Use) 75% = Tax Claim €2,250. This claim is allowed every year up to a maximum of 8 years from year of purchase provided you continue to use the car for business purposes. If all this sounds very confusing, our Fixed Assets calculators do all the figure work for you.
Q31. Can I claim a mileage allowance for motor expenses?
No, self-employed people cannot charge themselves mileage. You claim for motor expenses as explained in Q23.
Q32. I paid €1,500 for new computers. How do I claim this as a tax deduction?
The cost is allowed for tax over 8 years at 12.5% per annum as a Fixed Assets claim. The annual claim is €188.
Q33. Three years ago I paid €2,400 for a laptop which is now broken and useless. I claimed my annual tax allowance as a Fixed Asset for the last 3 years. What do I claim now?
As the laptop is now useless you can claim for all of the remaining 5 years of the Fixed Asset claim at once. The tax claim is for €2,400 x 12.5% x 5 = €1,500 Our calculators do this for you.
Q34. Is there any business expense I cannot claim as a tax deduction?
Yes. The most common non-tax allowable business expenses are entertainment costs. This can be a tricky one and needs to be carefully considered if entertainment costs are a significant part of your business expenses.
Q35. Can I claim the cost of bringing staff out for meals, or say Christmas party?
Yes the cost is allowable provided it is reasonable.
Q36. Can I claim for the cost of meals for myself as owner of the business?
Not unless you are doing so when you are away on business.
Q37. Can I claim for travelling abroad to trade shows, meeting customers etc.?
Yes, you can claim the full costs once you can show it is for business purposes.
Q38. What if I combine a holiday with a business trip?
Provided you eliminate the cost of the holiday on some reasonable basis then you can claim for the business costs.
Q39. I am just starting in business. Should I trade in my own name or through a limited company?
It depends on your type of business and likely profits. Limited companies involve a lot more red tape and regulation whereas trading in your own name is much simpler for accounting and tax purposes.
Q40. Are pension premiums a business expense?
No, but you can claim tax relief for them as a tax allowance in your tax return form.
Q41. Can I claim for the full cost of pension premiums?
No. A limit is set based on your age and subject to an overall maximum allowance based on the amount of your business profit. The maximum allowance for the 2018 tax year ranges from €17,250 if under 30 up to €46,000 if over 59.
Q42. Can I reduce last year’s tax bill by making a pension contribution?
Yes if you make the payment and claim for the tax relief by the 31st October in the following year. This is known as a Back Dated claim and is a very common claim for the Self Employed. Our tax and accounts software incorporates a pension calculator which clearly demonstrates how you can reduce your tax liability by increasing your pension contributions.
Q43. How do I know what amount I should pay as a pension payment?
Our pension calculator does this for you as it depends on your age and amount of your income.
Q44. Are Vat returns hard to complete?
No they are relatively easy. You have to add the total Vat you have collected from customers and take off the Vat you have paid to suppliers and the difference will either be a Vat refund owed to you or Vat owed to the Revenue. Our online accounts system will do all of this for you.
Q45. How often do you have to make Vat returns?
There are a number of different Vat periods- i.e. Bi-monthly- Jan/Feb, March/April etc. 4 monthly, 6 monthly and Annually. The bi-monthly option is the most common one.
Q46. Can I employ family members in my business?
Yes. Spouses, children, siblings and relatives in general can all be employed by you and provided they are paid a reasonable wage for what they do, the payment will be a normal business expense.
Q47. Can I save tax by employing my spouse?
Yes if they have no other income. Assuming a reasonable salary for the work performed by your spouse is €25,000 and they have no other income and you pay tax at 40% you could save circa €6,000 per annum.
Q48. If my children work part time in my business is there any limit on what I can pay them?
Once they are paid a reasonable salary for what they do there are no specific limits. A child can earn up to €8,250 free of tax. Depending on the circumstances PRSI might be payable.
Q49. How do you get selected for an audit by the Revenue?
It can be pure random. They might be targeting your industry particularly if it involves cash payments from customers. They might have picked up information about you whilst auditing someone else and want to check it.
Q50. Do you always have to pay extra tax when audited by the Revenue?
No, provided no tax problems are found. A lot of people receive a clean sheet.
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