If you are letting a property to tenants, there’s a good chance that you’re not seeing a lot of income after you’ve paid your mortgage, insurance and other bills.  There’s a common misconception that when a property is let, it only needs to be declared on a tax return once it is profitable.  Unfortunately this is not the case, as all rental income received should be declared to Revenue.

Many people would view their mortgage payment as an expense that can be off-set against the rental income, and will come to the conclusion that they aren’t making a profit at all.  However in actual fact you can only off-set 75% of the interest paid on your mortgage, which is normally considerably less than the actual mortgage payment itself.  So what may seem like a loss making source of income can often be profit making in the eyes of Revenue.

If your rental property is loss-making, there is a good reason for you to be declaring the loss now by submitting a tax return. Although it will have no tax benefit now, later down the line when you may be making a profit, the losses generated in the early days can be off-set against these profits.  By not informing Revenue of the losses via a tax return, they will simply have been lost.

There are a number of expenses that can be off-set against the rental income, and these include: –

• Mortgage interest on the loan to acquire property
• Repairs e.g damp and rot treatment, repairing broken windows or appliances
• Maintenance e.g cleaning, painting or decorating costs
• Management and estate agent fees
• Advertisement expenses
• Insurance premiums
• Legal fees incurred when drawing up the lease
• PRTB registration fee
• Fees paid to accountants for preparation of rental accounts
• Service charges if these are paid by the landlord and no separate payment is received from the tenant e.g. bin charges, electricity, gas, phone rental etc.

At the beginning of the tenancy make sure to keep a record of the cost of furniture and fittings in the property as there is also an allowance for wear and tear of furniture and appliances.  An allowance of 12.5% of the cost of furniture and appliances can be offset per annum for 8 years.  For example if you purchase furniture for €2,000, for the next 8 years you can offset €250 each year against the rental income.

It is also important to note that mortgage interest tax relief at source (MITRS) cannot be claimed while renting out a property.  If you are continuing to receive this you should contact Revenue and let them know that the property is being rented.  If you continue to claim this you could find that Revenue may ask for you to repay it at a later date.

Finally remember to register with the Private Residential Tenancies Board, (PRTB).  If you are not registered with the PRTB you will not be allowed to claim some reliefs so it is important to do this when a tenancy commences.

It’s easy to feel a bit over-whelmed if you’re bombarded with unfamiliar accountancy terms. In most cases the concepts behind the words are simple enough and just need to be explained in plain English. When dealing with our clients we always make sure to avoid any jargon and break things down in plain English.

The most common terms that you’ll hear if you’re a sole trader or a company director, are profit and loss and balance sheet. These are basically just reports telling you how well your business has done during the year, and also what it owns, owes and its value.

A profit and loss account simply details your sales, purchases and any other expenses for the year. Subtracting your purchases and expenses from your sales gives you your net profit or loss. So in basic terms it shows if your business has made money or lost money. The purpose of a balance sheet is to show your business’ worth, and it shows everything that it owns as well as everything that it owes.

Some of the items that appear on the profit and loss and balance sheet may sound more complex than they are, for example assets. An asset is something that your business owns. There are two types of assets, fixed and current. A fixed asset is something that you own that cannot be easily converted into cash e.g. property, vehicles, machinery etc. A current asset would be something that can be converted to cash quite quickly e.g. the stock that you hold, the people who owe you money, and of course the cash in your bank account.

Liabilities on the other hand are the things that you owe. These would be split between debts owed over a long period such as a bank loan, and those owed over a shorter period such as supplier debts and tax bills. Generally if your current assets are twice the amount of your short term debts then your business would be considered to be healthy, as it would be an indication that you are able to pay your debts as they fall due.

A word that often causes confusion is depreciation. Depreciation is not a real cost to a business even though it appears in the profit and loss account. When you buy a fixed asset it would normally be assumed that you would hold it for a number of years and would therefore benefit from its use over these years. In the same way you would want to recognise its cost over the same number of years rather than just in the year that you purchased it. If for example the asset has a useful life of 5 years, depreciation would simply be one fifth of its cost being recognised each year over a 5 year period.

At Munnelly & Co. Accountants we appreciate that our clients want to understand their accounts. We work closely with our clients in Carlow, Kilkenny and surrounding areas to ensure that they fully understand their business figures.

Munnelly & Co Accountants have worked closely with many businesses in the Carlow and Kilkenny areas in the past few years, and our experience stretches over a wide variety of industries.  Whatever your business we can help you.

But what makes us different and why should you work with ourselves?

Firstly we will meet with you to find out more about your business and circumstances.  No two clients are the same so it’s important that we first understand your business so that we can then understand how we can help you.

As our office is based right in the centre of Carlow Town, it makes it convenient for our clients to find us. If getting to us is a problem we can arrange to meet you elsewhere. Our appointments are flexible and we’re happy to arrange a mutually convenient time to meet.

One of our main goals is to take away the stress of your accounts and tax.  We do this in a number of ways.  You may want an accountant who will take care of everything on your behalf leaving you free to deal with the day to day running of your business.  That’s no problem for us. In fact when we provide this kind of service for clients it allows us to give them feedback on their business during the year rather than just at the year end. It also ensures that we keep them fully compliant with vat and employer’s taxes. If you’re based in Carlow Town we can even arrange to pick up your paperwork on a regular basis.

If you prefer to keep the bookkeeping in house that’s fine by us. We’re happy to take care of your year end accounts and compliance work, but we’ll also be there during the year should you need advice or help on anything. As we use fixed fees you won’t find any unexpected bills at the end of the year if you do need to call us or meet with us during the year.

As well as keeping you compliant with Revenue and the CRO we want to help you understand your accounts so that you can make good business decisions based on those figures. Ideally we like to meet with clients to go through their accounts, but if email or phone is more convenient for you then we’re happy to do that do.

As we tailor our service to suit our clients we’re happy to work with the systems that you may already have in place. Of course if we can suggest improvements then we will, but our aim is to find the best way to work together rather than ask you to change the way that you work.

If you would be interested in finding out more about us and the ways we can help you and your business, call us today on 059 9137474.

Alternatively you can call into us in Carlow Town if you’re passing by. Our initial consultation is free and there’s no obligation to take things any further.

For all of your accountancy and tax needs speak to us today.

When a business starts to grow, the owner can often find themselves in a position where they need an extra pair of hands but at the same time have concerns about the pressure of adding an additional cost.  Over the last couple of years the government has attempted to make it easier for businesses in this position to recruit and retain staff.

The current scheme in place to help employers recruit is the JobsPlus Scheme.  This scheme pays employers a financial incentive to recruit employees who were long term unemployed.  Currently if you recruit somebody who has been unemployed for more than 12 months you will receive €7,500 towards the cost of their wages.  If the person has been unemployed for more than 2 years this increases to €10,000.  The money is paid monthly in arrears, over a two year period.  The income received from this initiative will not be classed as taxable for income tax or corporation tax purposes.

Another scheme that can be a help to businesses in this situation is the Jobs Bridge Scheme.  This scheme allows a business to offer a 6 – 9 month placement to somebody who has been in receipt of a jobseeker’s payment for at least 3 months.  While the individual benefits from gaining relevant experience and receiving an additional weekly payment, the employer –subject to satisfying the relevant criteria – can also avail of the JobsPlus Scheme should they be in a position to offer the individual employment when the placement ends.

If you are in a position where you are taking on employees for the first time, there are a few things that you need to be aware of.  Firstly you will need to register with Revenue as an employer.  You will also need to register your new employees with Revenue in order to obtain their correct tax credit certificate.  When you have this information you will need to operate a payroll system whereby you calculate and deduct tax from your employees’ wages.  This tax will then need to be declared and paid to Revenue on either a monthly or quarterly basis.

A common mistake that employers often make is to agree to pay net wages to their employees i.e. a set amount after tax.  While this is very good for employees it can often work out quite costly for employers.  Even though the wages are paid net to the employees, the employer has to gross up the amount that he has paid and pay that tax over to Revenue.  What often happens is that unbeknown to the employer, the employee may not have the standard tax credits or full standard rate tax band e.g. they may have chosen to transfer this to their spouse.  As a result when the net pay is grossed up, the tax payable will be considerably higher than the employer may have expected.  It’s always wise to pay gross wages, but if you do decide to go down the net wages route, then you should ensure that your employees have the correct tax credits and that these do not change during the year.

Becoming an employer can be challenging in a number of ways, so it’s a good idea to seek advice if you are unsure about any aspect of your new responsibilities.

If you have a specific question or issue that you’d like covered, please email Emma at emma@munnellyaccountants.ie 

A common question that people ask when running a business is what can I claim as a business expense? While some things are specifically disallowed, there’s not really a black and white answer as to what constitutes a business expense. Revenue defines a business expense as follows: ‘any expense that is wholly and exclusively paid for the purposes of the trade or profession’.

What does this actually mean? Well ‘wholly’ relates to the cost itself. So the whole of the cost must be related to the business. Where part of the cost is not related to the business this must be disallowed. Examples of expenses that might not be wholly for the purpose of the business are motor costs, heat & light used in a home office and mobile phones. If these are being claimed as business expenses then the personal element must be deducted first.

‘Exclusively’ relates to what has actually been purchased, so the item must be for the exclusive use of the business. Again where part of the item is not for the exclusive use of the business, the cost of that element must be disallowed. There is often confusion around ‘exclusively’, as people may ask themselves would they have incurred the cost if they were not in business, and if the answer is no they may assume that it must be an allowable expense. However the sole purpose of the expense must be for the purposes of the business.

Examples of expenditure that people often assume to be business related are childcare, clothing and food. However if you consider each of these, their sole purpose is not for the purpose of the business. For example the sole purpose of the cost of childcare is to care for the child. The child will need to be cared for regardless of somebody’s business commitments. Similarly the sole purpose of clothing is to fulfil the ordinary basic human need for clothes. A person needs to wear clothing for warmth and decency regardless of their trade.

Some expenses are specifically disallowed as business expenses such as client entertainment. This would relate to any form of hospitality such as accommodation, food, drink etc. Staff Entertainment is allowable unless it is incidental to providing client entertainment. Travel to and from a place of work is also a disallowed expense. If a contractor is working for one employer, the employer’s premises would be classed as their place of work and so traveling back and forth everyday would not be an allowable expense. However a sole trader e.g. a plumber servicing clients across the country would be able to claim travel costs as his home would be classed as his place of work.

Finally if you work from home for any amount of time only a reasonable amount of home expenses can be claimed. Claiming excessive expenses could result in your home being classified as a commercial property, and subsequently being subject to commercial rates. It could also give rise to a Capital Gains Tax charge if you were to sell your home further down the line.

If you have a specific question or issue that you’d like covered, please email Emma at emma@munnellyaccountants.ie