IR35 and expenses

[expat]

May I ask a question about IR35 and expenses? I'm curious to know whether it is logical or not. So I imagine 3 situations:

1. Let us suppose that I am employed by my Ltd Co. I get a BoS contract with a client in the usual way. Then presumably HMRC will argue that this falls within IR35 and they will, among other things, not allow me to claim training as an expense.

2. Now let us suppose that I am employed by a Ltd Co, but let us say that it is not MY Ltd Co but rather someone else's, e.g. Joe Bloggs. I get a BoS contract with a client as before. Do HMRC refuse to allow Joe Bloggs Computer Services Ltd to give me training and allow the cost as an expense?

3. Now let us suppose the same situation as no. 2, but it's not Joe Bloggs Computer Services Ltd that employs me, it's EDS. Are they allowed to train me and claim the cost as a business expense?

[malvolio]

1. Only if you are in fact caught by IR35. As I have said many times, this is largely a voluntary position to be in...

2. No. You are an employee of theirs. Staff training is a business expense. They can offset the expense against taxable profits.

3. See (2)

The mistake you are making is to assume that IR35 is a company taxation - it's not, it's a personal one. Hector deems that all your company income is to be taken as fully taxed salary (less 5% for overheads). It disregards the minor detail that your company spends money on training - so you can claim it as an expense at the company level, but you will still pay tax on it as a person.

[expat]

1. Only if you are in fact caught by IR35. As I have said many times, this is largely a voluntary position to be in...

2. No. You are an employee of theirs. Staff training is a business expense. They can offset the expense against taxable profits.

3. See (2)

The mistake you are making is to assume that IR35 is a company taxation - it's not, it's a personal one. Hector deems that all your company income is to be taken as fully taxed salary (less 5% for overheads). It disregards the minor detail that your company spends money on training - so you can claim it as an expense at the company level, but you will still pay tax on it as a person.

2. So Joe Bloggs Ltd can claim it as a business expense, but will your salary will be deemed to include it, i.e. you'll be taxed on more salary than you actually get?

[freshblue]

Err no... a "true" business can choose to invest in it's staff and thus this may affect profit. You salary is only one component when truly employed of the package or culture of the organisation.

[malvolio]

No. You will be paying PAYE and NICs like any other employee. IR35 doesn't even enter the equation. If Bloggs pay for traning out of their pocket, it's effectively free as far as you're concerned. If Bloggs won't pay for your training, you'll have to do it out of your own taxed income. Either way, you can't reclaim anything.

The other point is that if you accept training from Bloggs or EDS or anyone else who is nominally your client, then you are effectively blowing a hole in any IR35 defence you might have had since you are demonstrating that you are acting as an employee.

At the end of the day you are looking to save a few grand on training at the expense of 20% extra tax out of your own pocket. Doesn't seem much of a deal to me, but hey, it's your money...

[expat]

Err no... a "true" business can choose to invest in it's staff and thus this may affect profit. You salary is only one component when truly employed of the package or culture of the organisation.

I know that, my question is would the Revenue deem Joe Bloggs Ltd out of the way in the same way as they would your own Ltd Co?

[expat]

No. You will be paying PAYE and NICs like any other employee. IR35 doesn't even enter the equation. If Bloggs pay for traning out of their pocket, it's effectively free as far as you're concerned. If Bloggs won't pay for your training, you'll have to do it out of your own taxed income. Either way, you can't reclaim anything.

The other point is that if you accept training from Bloggs or EDS or anyone else who is nominally your client, then you are effectively blowing a hole in any IR35 defence you might have had since you are demonstrating that you are acting as an employee.

At the end of the day you are looking to save a few grand on training at the expense of 20% extra tax out of your own pocket. Doesn't seem much of a deal to me, but hey, it's your money...

Where's this extra tax saving that you could have? From paying yourself dividends? I don't do that, because I regard myself as self-employed. Dividends should be return on capital invested.

[malvolio]

If you are a sole trader, the trading rules are subtly different but IR35 still applies.

You are one of three things - an employee of someone, a business owner or a declared self-employed person under Scehdukle D (who can't work through agencies). If you're in an umbrella, you are an employee. If you are in a composite you're a pretend business owner.

If you are caught for IR35 you pay more tax than if you aren't no matter which flavour of "self employed" you are because of the expenses you can't offset against tax. If you can take dividends you obviously save an extra chunk of NICs which gets you up to the 20% point.

[expat]

No. You will be paying PAYE and NICs like any other employee. IR35 doesn't even enter the equation. If Bloggs pay for traning out of their pocket, it's effectively free as far as you're concerned. If Bloggs won't pay for your training, you'll have to do it out of your own taxed income. Either way, you can't reclaim anything.

I'm supposing that you are an employee of Bloggs, with Bloggs invoicing your agency for your services, instead of your being an employee of YourOwnCo Ltd and YourOwnCo Ltd invoicing. And my problem is:

If Bloggs can pay for your training before it pays you your salary (and you not have to pay tax on a deemed salary including that cost), how come your own Ltd Co can't?
But if Bloggs can't, how come EDS can?

[expat]

No. You will be paying PAYE and NICs like any other employee. IR35 doesn't even enter the equation. If Bloggs pay for traning out of their pocket, it's effectively free as far as you're concerned. If Bloggs won't pay for your training, you'll have to do it out of your own taxed income.

I thank you for your replies. But my question still nags: if Bloggs pay for my training, not out of their pocket but out of my client billing before Bloggs pay me salary, is my salary deemed to include that?