Ltd Co operating Inside IR35 - claiming subsistence - is it allowed?

[Jessica@WhiteFieldTax]

Slightly confused here - AFAIK, the scale rates can only apply if YourCo has a dispensation.

Unless you mean the overseas scale rates, but the OP mentioned working in the UK I think.

You may be right: in the back of my mind there were uk scale rates as well, but I encourage clients to work on the discipline of receipted costs.

[jamesbrown]

Yeah, I think the scale rates can only apply with a dispensation too (for the UK - for my overseas working earlier in the year I did mostly use the scale rates). I wasn't concerned about this point because I plan to only claim receipted anyway for UK. But I agree with you, I think it's scale rates only with dispensation for UK.

That's my understanding too w/r to the overseas scale rates. The overseas rates are now based on the Foreign and Commonwealth Office rates. A few years back, I think HMRC realised that it was impossible for an average company to conduct sampling for overseas rates as the basis for an individually agreed dispensation. Thus, they moved over to these standard rates for which no dispensation or reporting on the P11D is required. These overseas scale rates are in addition to the daily amount for incidentals when travelling outside the UK.

[jamesbrown]

IIRC, you have no reporting requirements for employees earning at a rate of less than £8,500 per year (this was a rate set way back in the 70s and never changed). In other words, there is no need to complete either a P11D or to apply for a dispensation to use the benchmark scale rates under those circumstances. Of course, what this means in practice is that Ltd. Co. directors do need to apply for a dispensation to use the benchmark scale rates. If you want to use the benchmark scale rates without conducting a sampling exercise (i.e. not applicable to us), you need to tick the relevant box on the P11D or request a dispensation in writing. However, I believe that HMRC are looking to eliminate dispensations for close companies altogether (as well as this outdated earnings rate). For this reason, it is now much more difficult for close companies to have a dispensation approved. That's my understanding anyway.

[ASB]

I think the guidance is a bit unclear. On the one hand it mentions tick a box on p11d. On the other it talks about specific caution before granting for a one man/psc. If intending to use a phone call to hmrc to confirm might be prudent.

[Glencky]

Slightly confused here - AFAIK, the scale rates can only apply if YourCo has a dispensation.

Unless you mean the overseas scale rates, but the OP mentioned working in the UK I think.

Yeah, I think the scale rates can only apply with a dispensation too (for the UK - for my overseas working earlier in the year I did mostly use the scale rates). I wasn't concerned about this point because I plan to only claim receipted anyway for UK. But I agree with you, I think it's scale rates only with dispensation for UK.

[Contreras]

(Taken from HMRC - HM Revenue & Customs:)

If your subsistence falls inside the main T&S rules, booklet 480, then they will qualify as "that an employee of the client would have been able to claim against income tax if he or she had spent the money personally "

If the expenses aren't receipted then they will need to be inside either a dispensation for YourCo or the published HMRC scale rates.

Slightly confused here - AFAIK, the scale rates can only apply if YourCo has a dispensation.

Unless you mean the overseas scale rates, but the OP mentioned working in the UK I think.

[Glencky]

Martin and Jessica - thanks very much for your further replies and the links - appreciate your time.

Seems like I couldn't find a conclusive answer because there isn't one - which just leaves me with making the appropriate judgement! some extra reading matter for me to help with that though - thanks.

[ContrataxLtd]

NLUK - awww, but thanks for taking the time to heckle!
Stek - not sure if aimed at me or NLUK. If me - whatever! I reckon there's no such thing as a stupid question, if you're asking it the first time. If at NLUK - aythangyew

TheFaqqer - appreciate you taking the time to read and reply - thanks. However I'd read that, and the .pdf download, and there are some very carefully worded parts in both the article and the .pdf I suspect are there deliberately to be vague on this point.

ContrataxLtd - thanks very much, that's been my reasoning so far - don't suppose you've got any HMRC links in support? I've skimmed many pages on the HMRC site but none (in my mind) conclusive so far. Rather, evidence in both directions. Hence me currently being in the mindset of the 'general reasonableness' view which is if the travel's allowable, so much the subsistence be (and it's a lot easier to find clarity over the travel).

Hi Glencky

The following page from HMRC may help : HM Revenue & Customs: Travel - general

Martin
Contratax Ltd

[Jessica@WhiteFieldTax]

Concur with Martins view.

I doubt you'll find express confirmation from HMRC. It's a first principle type matter:

What expenses can I deduct in calculating the IR35 deemed payment?
In addition to the flat rate deduction of 5 per cent, the following expenses can be deducted in the calculation:

Any expenses met by your company or partnership that an employee of the client would have been able to claim against income tax if he or she had spent the money personally (such as certain travel expenses, professional subscriptions and premiums for professional indemnity insurance). 'Booklet 480: Expenses and benefits - a tax guide' provides full details. More details about travelling expenses are given in the next section.

(Taken from HMRC - HM Revenue & Customs:)

If your subsistence falls inside the main T&S rules, booklet 480, then they will qualify as "that an employee of the client would have been able to claim against income tax if he or she had spent the money personally "

If the expenses aren't receipted then they will need to be inside either a dispensation for YourCo or the published HMRC scale rates.

[Glencky]

NLUK - awww, but thanks for taking the time to heckle!
Stek - not sure if aimed at me or NLUK. If me - whatever! I reckon there's no such thing as a stupid question, if you're asking it the first time. If at NLUK - aythangyew

TheFaqqer - appreciate you taking the time to read and reply - thanks. However I'd read that, and the .pdf download, and there are some very carefully worded parts in both the article and the .pdf I suspect are there deliberately to be vague on this point.

ContrataxLtd - thanks very much, that's been my reasoning so far - don't suppose you've got any HMRC links in support? I've skimmed many pages on the HMRC site but none (in my mind) conclusive so far. Rather, evidence in both directions. Hence me currently being in the mindset of the 'general reasonableness' view which is if the travel's allowable, so much the subsistence be (and it's a lot easier to find clarity over the travel).

[ContrataxLtd]

I have seen many views expressed here pointing out the benefit is only 20% of the amount claimed, etc, and I certainly have sympathy with the view that it might not be worth the hassle. But for me, of course, it's not just 20%. It's actually nearer 50% because of being inside IR35. And actually, it's the principle of the thing.

This, when operating as if you were inside IR35 claiming the qualifying expenses actually makes quite a large impact on your effective take home figure.

Broadly speaking, if the travel costs were allowable then the associated subsistence costs will be too.

Hope this helps

Martin
Contratax Ltd

[TheFaQQer]

So... thoughts? Anyone want to show me the highly obvious thread already answering my exact question that my searching has somehow missed?!

Go to Contractor Expenses ---->

Then go to Contractor Meal Allowances & Expenses.

Linky

[stek]

TL;DR

TS;DR

[northernladuk]

TL;DR

[Glencky]

Hi folks, not quite such a noob as I was the last time I posted, but still new enough! I've searched the forums (and the internet) around this question and done a lot of reading, but not found specific enough answers/ links to fully satisfy myself hence starting a new thread. Like the title says, I'm interested in what is allowable for claiming subsistence in my next contract.

I set up my limited company in January and am about to enter a contract with my second client. My first contract (well, first to 5th - it was supposed to be very short term but was extended several times) was unconventional - I worked overseas for some of it and from my registered office at home for the remainder. During that time, as an employee of my company I either made expenses claims of my company either for travel & subsistence using overseas rates for the specific country (for the time periods I was abroad) or nothing (because I was working from home). (as an aside, some of my expense, e.g. flights, airport transport, accommodation, got billed to the client but subsistence for example did not).

I am choosing to operate within IR35 and yes, I know this costs me significant money. Although I believe technically both my contracts with my first client and the one I'm about to sign with the second put me outside IR35, my personal view is the working practices for both put me inside it. I have significant issues with the way IR35 works from a fairness perspective (which can be summarised as, given I have no employment rights why should I pay more tax than the permies) but with my reading of how it works I feel I have little choice (and there are other benefits to contracting via a Ltd Co). I'm well aware of the discussions on all sides and I do know the significance of it so I'd appreciate if you wouldn't challenge this here - I've mentioned it because it obviously affects the accounting position.

Since I'm inside IR35, let's say I'm going to invoice £100k in a year since it's a nice round sum. Tax-wise, all I get to deduct from that is £5k (5% expense allowance) any pension contributions and other allowable payments before the remainder is treated as income and I get taxed full employee and employer NICs and PAYE. Travel and subsistence type expenses paid to me as an employee are the main 'allowable payments' deducted before the rest is treated as salary. For my overseas gig this is fairly significant amounts - and also uncontroversial from an HMRC perspective, I'm careful about what I've claimed. For my next client it's in the UK and a far more 'standard' contract so I'm trying to work out what is allowable and reasonable.

I already understand the 24 month rule. My contract is 6 months so I'm nowhere near that. Even if they extended it'd likely only be for 6 so I won't get to the stage where I either exceed the 24 month rule, or expect to/know I'm going to for ages. I'll cross that bridge when I come to it. So my new client site will be a temporary workplace. So I can claim the train fares no problem, which is good because they're blinking extortionate. (Sometimes I may drive so I'll claim mileage and parking - obviously I will keep good records of all of this).

So the question comes back to subsistence. If my previous working patterns are repeated, I imagine sometimes I'll take packed lunches with me (though it will depend to some extent on things like whether I have access to a microwave once I get there). Obviously I know I can't claim anything - scale rate or otherwise - for those days. But otherwise, given I'm already going to be out of the house typically 13 hours a day including my commute, I will probably buy lunch by the office. This is clearly only happening because I'm at the client site rather than working from my usual place of work (my registered office at home) so in my mind claiming subsistence is entirely reasonable. However there seems to be so much debate about it and I honestly can't find what I feel to be a definitive answer, either on HMRC's website or anywhere else. I'm pretty sure I've confirmed I can't use scale rates without a dispensation and probably can't get a dispensation because I'm a one woman band (just director, no secretary). I'm fine with claiming actual receipted expenses, it's not much more time-consuming.

I have seen many views expressed here pointing out the benefit is only 20% of the amount claimed, etc, and I certainly have sympathy with the view that it might not be worth the hassle. But for me, of course, it's not just 20%. It's actually nearer 50% because of being inside IR35. And actually, it's the principle of the thing.

So... thoughts? Anyone want to show me the highly obvious thread already answering my exact question that my searching has somehow missed?!

All help gratefully received!