Expense

Published Wednesday 30 September 2026

Table of contents

• What is an expense?
• Examples of common business expenses
• 4 types of expenses
• How expenses work in accounting
• Which business expenses you can claim in Ireland
• How to record and track expenses
• Manage your expenses with Xero
• FAQs on expenses
• Related terms
• Learn more about expenses

Key takeaways

• An expense is money or other resources your business uses up to earn revenue. Every expense reduces your profit.
• You can group expenses as deductible or non-deductible, direct or indirect, fixed or variable, and operating or capital. Each view answers a different question about your spending.
• Revenue lets you claim costs directly related to running your business, such as rent and accountancy fees. Capital purchases go through capital allowances instead.
• Recording each expense as it happens keeps your profit figures accurate. It also makes your tax return quicker to complete.

What is an expense?

An expense is money or other resources, such as time, that your business uses up to earn revenue. Each expense lowers the profit you keep.

Say you run a café in Galway. Coffee beans, milk, your barista’s wages and the monthly rent are all expenses, because you pay them to keep serving customers. If the café takes in €8,000 in a month and spends €6,000, your profit for that month is €2,000.

Knowing what counts as an expense lets you see where your money goes. It also shows you which costs you can claim against tax.

Examples of common business expenses

Most small businesses in Ireland pay a similar mix of everyday costs. Here are some you’ll likely recognise.

• Rent and utility bills for your premises
• Wages and salaries for your staff
• Stock and materials you buy to sell or use in your work
• Fuel, insurance and servicing for business vehicles
• Accountancy and bank fees
• Phone, internet and software subscriptions
• Advertising and marketing costs

4 types of expenses

Accountants categorise expenses in several ways, and each one answers a different question about your business. These four pairs come up most often for small business owners.

1. Deductible vs non-deductible expenses

A deductible expense lowers your taxable profit, so you pay less tax. Revenue decides which costs qualify, and non-deductible expenses still appear in your accounts while leaving your tax bill unchanged.

2. Direct vs indirect costs

Direct costs link straight to making a product or delivering a service, like the flour a bakery uses. Together they make up your cost of sales.

Indirect costs, often called business overheads, keep the whole business running. Insurance and accounting software are typical examples.

3. Fixed vs variable costs

Fixed costs stay the same each month whatever your sales, like rent or a software subscription. Variable costs rise and fall with how busy you are, like ingredients or delivery fees. Knowing the split shows you how much you need to sell to cover your costs.

4. Operating expenses vs capital expenditure

Operating expenses are the day-to-day costs of running your business, such as wages and stationery. Capital expenditure is money spent on assets you’ll use for several years, like a van or a commercial oven.

Revenue treats capital expenditure differently: instead of deducting it straight away, you may be able to claim capital allowances over time.

How expenses work in accounting

In your accounts, expenses sit on the profit and loss statement, also called the income statement. According to the Corporate Finance Institute (CFI), expenses are deducted from revenue on this statement and recognised when incurred, even if you pay later.

Direct costs come off first to give gross profit, which is revenue minus cost of goods sold (COGS). Net profit is what remains after you also take away all other expenses, interest and taxes.

Timing depends on your accounting method. Say the café buys €500 of coffee beans in March and pays the supplier in April.

Accrual accounting puts the expense in March. With cash accounting, you’d record it in April, when the money leaves your account.

Every expense you pay becomes an entry in your books, so it’s worth learning how to record transactions accurately.

Which business expenses you can claim in Ireland

Revenue allows deductions for expenses directly related to running your business. You claim them through the Revenue Online Service (ROS), on a Form 11 if you’re self-employed or a Form CT1 if you run a company.

Costs you can usually claim include:

• goods you buy to resell
• your employees’ pay
• rent and bills for your business premises
• running and lease costs for business vehicles or machinery
• accountancy fees
• interest on business loans

Some costs are personal in nature, so Revenue excludes them. These include:

• clothing, apart from protective clothing
• your own pay
• business entertainment
• your own food and travel, with some exceptions

When a cost is partly personal, such as a phone bill or motor expenses, you claim only the business share. If you’re VAT-registered, leave the VAT out of the amount you claim.

Larger purchases follow the capital allowances route. For companies, Revenue sets the allowance for plant and machinery at 12.5% a year over eight years. So a company buying €16,000 of equipment would claim €2,000 each year.

How to record and track expenses

A steady routine keeps your records accurate and makes tax time easier. Work through these steps, and see this guide on tracking business expenses for more detail.

1. Keep a receipt or invoice for every purchase. Revenue asks you to keep original records for six years.
2. Choose categories that match your accounts, such as rent, wages, motor and office costs. Using the same categories each time makes your profit and loss report easier to read.
3. Record small cash purchases as they happen. Setting up a petty cash system keeps small spends like postage on the books.
4. Keep business and personal spending apart. A dedicated business bank account makes the business share of mixed-use costs easier to spot.
5. Review your expenses every month. Comparing each month with the last lets you catch rising costs early and plan your cash flow.

Manage your expenses with Xero

Expenses shape both your profit and your tax bill, so recording them properly pays off all year. With Xero’s expense tools, you can upload receipts and keep every claim in one place. Automated bank feeds keep your records up to date.

Spend less time on admin and more time on your business when you sign up and get one month free.

FAQs on expenses

Here are quick answers to more questions about business expenses in Ireland.

Is an expense the same as a cost?

The two overlap, but a cost is any money you spend, while an expense is a cost used up in the period to earn revenue. A new van is a cost that becomes an asset, and only its wear over time shows up as an expense.

Is paying yourself a business expense?

Revenue doesn’t let you claim your own pay as an expense. As a sole trader, you pay tax on your profit whether you take the money out or leave it in the business.

Are prepaid expenses an expense or an asset?

A prepaid expense starts as an asset, because you’ve paid for something you haven’t used yet, like a year of insurance upfront. Under accrual accounting, you move a portion to expenses each month as you use it.

Can I claim expenses from before my business started trading?

Yes, Revenue lets you claim pre-trading costs, such as preparing a business plan. Keep the receipts from day one so you can back up the claim.

How long should I keep expense receipts in Ireland?

Six years, and Revenue expects the originals, so hold on to paper receipts even after you’ve scanned them. Filing them by month makes any Revenue query quicker to answer.

Related terms

• Net profit
• Cash flow
• Assets
• Liabilities
• Accrual accounting
• Income tax

Learn more about expenses

• Business cost-saving ideas
• How to increase profits
• Cost of goods sold (COGS)
• How to measure profitability