5% expenses

[malandri]

Greetings,

I am running an Ltd, i am inside IR35 though as as my contract didn't pass the test and i am not yet ready to run a real business. I understand that i can claim 5% of my annual revenue as expenses when i calculate the deemed salary. It looks like though that my real expenses will not be more than 1% of my revenue. What happens with the remaining 4%? Is it being taxed, is it added to my net annual income, can i take it as dividends?

Sorry for the elementary questions

[planetit]

It will remain in the company. Taxed as Corp Tax. You could take what's left after that as a dividend.

[MrsGoof]

You can also buy Books, Toys etc....with that money

[malandri]

My understanding is that this 5% will always be deducted in order for the deemed salary to be calculated,without the need for receipts. However, i need to have receipts in order to say that i have spent it all, or have spent only a part of it so that the amount that i can take as dividends can be calculated. What do the rest of you think?

[Mindomoo]

I thought it was:

Gross income
e.g. 100,000

Less 5%
leaving 95,000

Less genuine receipted travel and subsistence, say 15,000
leavine 80,000

[planetit]

My understanding is that this 5% will always be deducted in order for the deemed salary to be calculated,without the need for receipts. However, i need to have receipts in order to say that i have spent it all, or have spent only a part of it so that the amount that i can take as dividends can be calculated. What do the rest of you think?

This is correct.
For deemed salary the 5% is deducted. Then after your company year end you (or your accountant) will work out company profit and corp tax. In order for expenses to be deducted from this profit figure you need to have incurred them.

[MrsGoof]

I think thats right, The 5%is for things like Accountants Fees, Bank Charges, Insurance FIling Charges etc....

[malandri]

Thanks. Then i think that the profit can stay in the company without it being taxed, provided it is less than 50K? Or 10K? I also think that if i am to take dividends, the 19% corporation tax will apply to the whole amount i take, even if it is less than 10K

Also, i will be claiming a lot of expenses on mileage as i am doing 85 miles / day. This will be around 7K / year. I am paying for fuel and car maintenance using my personal account, how will i take this money out of the company to reimburse myself?

[malvolio]

As regards mileage, you claim 40p per mile for the first 10k miles (I think - check that number!!) then 25p per mile thereafter. I keep a simple spreadsheet and log all business journeys made, and feed the end-of-month total back as an addition to my monthly salary. It is tax free income, of course, which is why you have to be absolutely accurate about it and have it proerly recorded in case Hector wants to check it.

The inside-IR35 deemed salary thing is (Gross Income - 5%) - Business Expenses (i.e. pensions, mileage, accountants fees, blah-di-blah) = deemed salary pa. If you're paying yourself monthly, there may be some year end adjustments on PAYE, NIC and nett salary to take of course.

BUT since you can't take dividends and are paying full rate PAYE and NICs, there is little point in leaving money in the company - one of the many stupidities of IR35 is that it doesn't recognise the need for people to store income to cover non-working time, so you may as well take it as salary and stick it in a high interest account somewhere.
BTW - you own a company, are earning money, deciding how to pay it out, finding work: on what basis are you not a business? And don't be so sure your contract terms put you inside IR35, it's how you work that counts: if, for example, you decide how the work is to be done and the client only tells you what end-result they are expecting, you are not bound by D&C...

Don't fall for the FUD. IR35 is almost entriely voluntary these days, if you work at it.

[malandri]

I agree with you. However, moving from permanent to contract has been a really busy period. As soon as i get some time, i will structure my business to look like what it is , a real business!!