A - Firstly, a distinction must be made between the type of expenses your accountant will allow in your accounts, and what the Revenue will allow as a deduction for tax purposes. The two can, and do, differ. For example, all fixed assets should as a rule be depreciated on an annual basis, except possibly land and buildings, as they are invariably increase in value. So you and your accountant may think it is right and fair to depreciate your computer equipment by, say, 20-25% per annum, as it is likely that you will update and/or replace it in four or five years time. The Revenue, on the other hand, will only allow you to depreciate your computer equipment at 12.5% per annum. Another example is entertainment costs. You and your accountant may agree that it is essential that you have to entertain various people as part of your business. The Revenue, however, do not see this as being a legitimate business expense. So whatever profit figure you or your accountant come up with, it could be very different from the one the Revenue will use to base your tax on.
Going back to the question, costs can usually be split into two separate categories, direct costs and administrative costs. Direct costs, by their very nature, can be directly connected to your ability to generate income, and there is no disputing them. Some examples of direct costs would be venue hire, equipment hire, tour travel, advertising and promotion, distribution and marketing costs, recording costs, video costs, crew costs, rehearsal costs, per diems, management and agents’ commission, merchandising costs and so on. This list is not exhaustive, but you should be aware that direct costs are directly linked to the generation of income, and are always allowable as a tax deduction.
Then we have administrative costs. These are not as directly linked to generating income as direct costs are, although without them no business could function properly. Administrative costs would include things like staff wages, light and heat, telephone, insurance, legal and accountancy fees, non-tour travel, rent, website costs, postage and stationery, subscriptions, entertainment and even research. It is your interpretation of these costs that will, most likely, contradict the interpretation of the Revenue. So as long as you can show that these costs were wholly and exclusively incurred on behalf of your business, then they should be okay. If the Revenue suspect that there is any element of personal use included in these costs, they will be disallowed.