Buying Laptop Within IR35 Contract

[Zylon]

I've entered contracting recently and my initial contract is with my previous perm employer, so obviously falls under IR35.

I am currently using the company's Laptop which I used while perm, but I need to purchase a high-end laptop of my own with high RAM in particular, for the areas I work in. Ideally I would purchase this before I start a new contract, but am unsure whether I would then be able to claim back the tax on it, and haven't been able to get clear from other threads I've read where this would sit.

I appreciate that under the current contract IR35 contract I can only claim back a fixed 5% expenses, but I would be able to purchase the laptop now and claim back the tax under my next contract? (assuming it's non-IR35). There is clearly a business justification for this, as I need the equipment before I could start the new contract, similarly to how companies can claim back expenses prior to when they were incorporated. Or am I stuck until I complete the IR35 contract?

[Neil@Intouch]

Deduction for capital allowances (IR35 Deemed calc)

You are allowed to make a deduction for capital allowances where this is bought for the performance of the relevant work engagement duties.

This means that relief will only be given if the duties of the engagement meant that your limited company had to provide the equipment in question. If the company purchases the equipment out of choice then no deduction will be given.

If this is purchased for dual purpose (business and personal) then this wouldn't qualify for relief. Insignificant personal use would.

Nothing in the legislation affects the capital expenditure that a limited company affected by IR35 can make. You’re free to make whatever purchases you want but relief will only be given if the above is met.

[jmo21]

You are allowed to make a deduction for capital allowances where this is bought for the performance of the relevant work engagement duties.

This means that relief will only be given if the duties of the engagement meant that your limited company had to provide the equipment in question. If the company purchases the equipment out of choice then no deduction will be given.

What if he is developing a product for his company to sell? would that qualify, or would you need an active paying client that is being used for.

[TheCyclingProgrammer]

The way I see it, whilst there are strict rules about how you distribute the income from your IR35 contract it shouldn't affect what YourCo pays for from its other income or reserves. So subject to the usual rules for company assets provided to an employee, I don't see why you couldn't claim capital allowances, you'd just need to pay for it out of existing reserves.

[eek]

The way I see it, whilst there are strict rules about how you distribute the income from your IR35 contract it shouldn't affect what YourCo pays for from its other income or reserves. So subject to the usual rules for company assets provided to an employee, I don't see why you couldn't claim capital allowances, you'd just need to pay for it out of existing reserves.

I think the issue is that its a new company without any reserves and this contract is very much inside due to it being with his former employer...

[TheCyclingProgrammer]

I think the issue is that its a new company without any reserves and this contract is very much inside due to it being with his former employer...

Missed that detail.

I guess there might still be a possibility of loaning the company the money, i.e. process payment from their contact via PAYE as normal but leave it credited to the directors loan account. Use these funds to but the laptop, company should still be able to claim capital allowances. Once company has reserve profit from a non-IR35 contract, they can repay the loan to themselves.

[Zylon]

Thanks for all the replies.

I guess there might still be a possibility of loaning the company the money, i.e. process payment from their contact via PAYE as normal but leave it credited to the directors loan account. Use these funds to but the laptop, company should still be able to claim capital allowances. Once company has reserve profit from a non-IR35 contract, they can repay the loan to themselves.

Yes that's the jist of it. I'm glad to see that most people agree with what I was thinking/hoping in that the current IR35 contract has no bearing on my being allowed to supply the equiptment in principal. I'm keen to make sure that the mechanism I use though doesn't fall foul of the rules.

Purchasing now from reserve funds which I've loaned to my company is how I was intending to fund this, which should mean that what I'm doing is fine, provided I do actually need the equipment for future contracts as Neil@InTouch says.

[TheCyclingProgrammer]

I think, in practice, if you're an IT contractor you're not going to have a problem justifying a laptop purchase.

[Cirrus]

so obviously falls under IR35.

Not obvious to me.

If the Revenue ever investigated you with IR35 in mind you would be perhaps on a slightly stickier wicket but I've never heard that working for a previous employer attracts special attention. Your company annual return would not show your client's identity.

I'd discuss this more widely and not jump to conclusions.

[ladymuck]

IR35 was brought in in response to the Friday-Monday contractor "thing" IIRC, so working for a previous employer does make for a stickier wicket. However, that said, if the working practices can evidence a true B2B relationship then it could well be an outside contract. Only the OP will be able to genuinely say either way. Erring on the side of caution for this gig and declaring in might be the safest way to deal with it.