Saturday 10 December 2016

Your questions: Can I write off the cost of an account on my self-employed tax bill?

Mike Gaffney

Published 17/05/2015 | 02:30

Mike Gaffney answers readers' personal finance questions
Mike Gaffney answers readers' personal finance questions

Q: I recently became self-employed after working for many years as a full-time employee. I'm a bit worried about filing my own tax return for the first time.

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First off, I'm not the best with figures. Second, my wife and I are also renting out an investment property so I understand I will have to complete the tax return for the rental income as well. Third, I am jointly assessed for tax with my wife - so I'm unsure how the tax credits work.

If I hire an accountant to prepare and file my tax return on my behalf, can I write the cost of hiring the accountant off my tax bill? And am I right that I have to include the rental income and my self-employed income in the one tax return?

Sam, Tralee, Co Kerry

A: You are right that you have to include both your rental income and your self-employed income on the one tax return.

It might not matter if you are not good with figures. If you or your wife are comfortable working with computers you may find that the program in the Revenue Online System ('ROS') will guide you through the preparation of the tax return without too much stress. You just put in the information and the program does all the calculations and prepares the return. You have to register with Revenue firstly - www.revenue.ie tells you how to do this.

If you don't want to do it yourself, you can hire an accountant. They are not expensive and often they can pay for themselves by making sure you claim every tax deduction to which you are entitled, and preventing you from claiming expenses which are not deductible.

If you are self-employed, the accountant can help you calculate the profit you should declare on the return. The cost of that is tax deductible.

Q: If I can get a car allowance of €10,000 a year, do I have to pay benefit-in-kind on it or do I simply pay tax on it in the normal way? If normal tax, how much of the allowance can I expect to lose to tax?

Gary, Finglas, Dublin 11

A: The short answer is that you have to pay tax on the €10,000 the same as any other normal pay. Your employer will have to apply PAYE, USC (Universal Social Charge) and PRSI as if the payment were normal salary.

If you are already a top rate taxpayer you will lose 52pc of the €10,000. This represents 40pc income tax, 8pc Universal Social Charge, and 4pc PRSI.

If you are not on the top rate some or all of the amount might be taxed at the lower 20pc income tax rate instead of the 40pc mentioned above. It depends on how much you are earning.

Maybe you are expected to pay all the expenses of running the car. If you pay for petrol for business use of the car you can claim a tax deduction for those expenses. However, bear in mind here that travel from home to work is not regarded as business travel so you can't claim for that.

Q: My husband and I run our own family business which we set up ourselves. Close friends of ours, who had also run their own family business, saw their family torn apart recently when the father of the family died young without leaving a will or instructions on how the business should be passed on.

My husband and I are anxious this won't happen to us and have heard that a discretionary trust could help avoid such squabbles. How does a discretionary trust work and what are the main advantages of it?

Sarah, Salthill, Co Galway

A: A discretionary trust is where one or more individuals, trustees, take over temporary control of the business until a decision can be made as to who should ultimately own and control it. It is sometimes the right answer - but not always.

For instance, in your case, where you are both involved in running the business, the most obvious solution is for you to take full control and ownership if your husband dies and similarly for him to take control and ownership if you were to die. You can provide for this in your wills.

In the hopefully remote event that you both die prematurely, that's when it gets complicated.

The first problem is deciding who should own and run the business. There may be an obvious successor, maybe a grown- up child, and in that case the recommendation would be to pass the ownership and control to that successor.

If there are other children, ideally they could be given other assets so they get their fair share of the overall estate.

If there are no other assets, so that the business needs to be shared between a number of descendants, it is preferable to specify who runs it and how decisions should be taken in the event of a disagreement. Any good business advisor can help on the details of this, as it is a well-trodden path.

If there are no obvious successors who can run the business (for example if both parents die and the children are not involved or are still small), then a discretionary trust is often used.

The way this works is that you have to pick one or more trusted individuals who will, as trustees, take control of the estate after the owners' death. It is obviously safer to pick, say, three individuals than one or two (for stability and balanced decision making).

The trustees should not have any ownership or potential ownership in the business, although they should be paid a fair rate for the work they do. Their job is to mind the business and take whatever decisions are necessary in the best interests of those who will inherit the assets ("the beneficiaries"). Ultimately they may pass control to one or more of the beneficiaries or maybe even sell the business and distribute the proceeds.

Normally the trustees take guidance from a "letter of wishes" written by the deceased and left behind with the will. That letter will acknowledge that the trustees have the discretion to do what is best, but might suggest some general ideas such as that all children are treated equally, or that if after some time there is still no child interested in running the business, then it is to be sold.

There are some tax implications to all of this, but as a general rule if a discretionary trust is the sensible approach, the tax costs will not be prohibitive.

Michael Gaffney is partner and head of markets with KPMG

Email your questions to lmcbride@independent.ie or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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