Tax is one of the things tradespeople worry about most and plan for least. The result is usually a nasty surprise in October when a large bill arrives that could have been managed much better with a bit of planning throughout the year.
Here are practical tips that make a real difference.
Set Aside Tax as You Go
The single most impactful habit you can build is setting aside a percentage of every payment you receive into a separate account. Do it the day the money arrives, not at the end of the month.
A rough rule of thumb: set aside 25 to 30 percent of your net income for tax. The exact amount depends on your total earnings, but this range covers most sole traders’ combined income tax, PRSI, and USC liability without over-saving.
When the October deadline arrives, the money is already there. No scramble. No stress.
Know What You Can Claim
Every euro of allowable business expense reduces your taxable profit and therefore your tax bill. Most tradespeople claim the obvious ones like materials and fuel but miss others.
Allowable expenses for Irish tradespeople typically include:
- Materials and consumables used on jobs
- Fuel for business journeys (keep a mileage log)
- Van or vehicle costs, either actual costs or a mileage rate
- Tools and equipment, subject to capital allowances rules
- Work clothing and safety gear
- Mobile phone costs, the business portion
- Insurance premiums
- Accountancy and bookkeeping fees
- Advertising and website costs
- Trade association memberships
- Training courses and professional development
- Bank charges on business accounts
Keep receipts for everything. A photo on your phone is enough. Revenue can request records for up to six years.
Use the Home as Office Allowance
If you do any administrative work from home, you can claim a portion of your home running costs as a business expense. Heat, light, and broadband costs can be apportioned based on the percentage of your home used for business and the amount of time spent working there.
The calculation can be done in different ways. An accountant will help you do this correctly and make sure you are not inadvertently affecting any CGT exemption on your home.
Capital Allowances on Equipment
Large equipment purchases, like a new van or significant tools, are not necessarily fully deductible in the year of purchase. They are typically claimed over time through capital allowances.
Plant and machinery (which includes most tools and equipment) qualifies for 12.5 percent per year over eight years. Motor vehicles have their own rules.
Understanding capital allowances means you can plan larger purchases to maximise the tax benefit over time.
Pay Preliminary Tax Correctly
Preliminary tax is an advance payment of your current year’s liability, due on 31 October. If you underpay, Revenue charges interest.
The safest approach is to pay 100 percent of your prior year’s liability. This protects you from interest charges regardless of how much you earn in the current year.
If your income has dropped significantly, you can pay 90 percent of your current year’s expected liability instead. But be careful. If you underestimate, you pay interest on the shortfall.
File on Time
The deadline for self-assessment returns and preliminary tax payment is 31 October, or mid-November if you file and pay online through ROS.
Missing this deadline triggers a surcharge on your tax liability of 5 percent up to €12,695 if you are within two months late, and 10 percent after that. These surcharges are entirely avoidable and represent money wasted.
Put the deadline in your calendar. Give your accountant your records well in advance so they have time to prepare the return properly.
Work with an Accountant Who Knows Trades
A general accountant is fine. An accountant who specialises in or has significant experience with tradespeople and construction is better. They will know the specific reliefs and deductions relevant to your trade, understand RCT and VAT issues common in construction, and be able to advise on the most efficient structure for your business.
The fee is a deductible business expense. And a good accountant will almost always save you more than they cost.
Written by Maebh Collins
ACA qualified, Dundalk-based. I build websites and write SEO content for trade businesses across Ireland and the UK. If you have questions, get in touch.