This is one of the few sure fire ways to get tax-free money out of your business. Legally, I mean. Misused and misunderstood, I am setting the record straight on Director’s Expenses.
But first, you have to be a director of a limited company. If you are a sole trader and have no intention of becoming limited, I am sorry, no tax free dosh for you here.
A perk of having a limited company is being able to claim standard rates for expenses, which means you get to write a regular cheque to yourself out of the company tax free. Hah? no tax? are you kidding? Yes I am, sort of. It just feels like it’s tax free. Let me explain.
There are two ways to take care of travel, meals and accommodation expenses. The first way is to just keep all the petrol, restaurant and hotel receipts for every business trip, log them into your accounts and pay yourself back through the company, or even just use the company credit card to pay for everything. This can be very tedious after a time and if you are a sole trader I am afraid you have no other choice but to do it that way.
If you are a director or employee of a limited company however, there is a different, simpler, and usually more tax efficient way to deal with expenses.
Instead of keeping all those fiddly little receipts, you keep a record of your business trips. The record has to clearly show:
• the name and address of the director or employee;
• the date of the journey;
• the reason for the journey;
• the kilometres involved;
• the starting point, destination and finishing point of the journey; and
• the basis for the reimbursement of travel and subsistence expenses [e.g. an overnight stay away from an individual’s normal place or work].
Why it feels like tax free money, is because you may not actually spend €108 on accommodation, not with D4 hotels doign €20 deals, but for simplicity’s sake, you can use a revenue approved flat rate. You might have to go late one day and find yourself paying over €200, it evens out in the end. And €13.71 for lunch? Brown bag it from time to time, still claim your €13.71 and you are up.
Now here’s the catch: for the mileage: YOU MUST PAY FOR EVERYTHING TO DO WITH THE CAR YOURSELF. You must pay for your own petrol, NOT with the company card, you must pay for your own car tax, mechanics bills, crash repair, loan repayments, insurance, EVERYTHING, do you hear me? Unless you do this, you will be in trouble for fraud.
For meals and accommodation: Same deal here! You cannot pay for a hotel with your company card, and then write a nice fat cheque for expenses. Some of you are saying, “Why is she telling us that, isn’t that obvious?” Just wait until you are scrambling to reduce your taxes, the blindness will creep in around then, so go back to this blog and read it again. It’s definitely one of the few good deals around, just don’t abuse it!
No double dipping! We tend to use planes trains and automobiles to go to the capitol, you may too. It’s important that you log on the calendar how you made the journey. For example, since we use the company card to pay for planes and trains, and if we have done that for a journey, we are not entitled to also claim the mileage.
“I’m a startup, my company can’t afford this yet, so what’s the point?”
There is very much a point. Do up the expenses sheets, and pay them out of your “Owner’s Funds” or “Director’s Loan” account in your accounts package. This will build up an amount of money owed to you that the company can pay you tax free when it hits profitability and/or can afford the cashflow. You will be a happy camper on that day.
Good habits – do your expenses sheet up every month. Sit in front of your Google calendar and AA route planner to figure out where you went and how many kilometres it was. Some directors like to save up their expenses for their holidays. That’s ok too, but log them in your accounts monthly anyway, building up the big cheque to come to you at some stage. It gives you a truer picture of your monthly profit and loss.
The spreadsheet you can use is all set up for you here
Note: the Revenue may change the rates from time to time, so keep your spreadsheet up to date by checking here:
http://www.revenue.ie/en/tax/it/leaflets/it54.html#appendix1 – for subsistence
http://www.revenue.ie/en/tax/it/leaflets/it51.html – for mileage rates
It’s fun to see the tax free money piling up at the bottom of the spreadsheet, to take now or later!