Question about expenses

[malvolio]

But only those allowable business expenses necessary for the contract surely? Not expenses spent for an entirely separate line of business.

Well OK. A company is a company. IR35 is not about companies, it's about personal taxation. If you want to be picky, it is 95% of the gross for the contract in question less any expenses directly related to that contract. General purpose company assets - if you have any - don't come into the equation.

In the OP's case, the sensible answer is either set up a subsidiary company per contract, or use an umbrella, or prove that his contracts - like 90% or more of them - are outside IR35. What he shouldn't do is muddle the IR35 dfee-earning revenue with the venture capital aspect of the original work. Also it depends if the "IR35 " contacts are to pay his mortgage or grow his primary business.

[xoggoth]

But only those allowable business expenses necessary for the contract surely? Not expenses spent for an entirely separate line of business.

[malvolio]

Ermm. chaps, can I butt in a second...?

IR35 deemed salary is calculated as 95% of gross less allowable business expenses... which sort of includes the tools of the trade (but not training costs...).

[CheeseSlice]

Sorry for hijacking this thread! Can i just ask what that sofware is?

Freeagent.. its an online webby thing

[kingcook]

My accounting software actually asks if I want a particular contract to be inside or outside of IR35, so it can sort out the calculations for me. Haven't tried it though because none of them have been IR35 caught.

Sorry for hijacking this thread! Can i just ask what that sofware is?

[CheeseSlice]

Some contractors do have both caught and non caught contracts and have to do the separate calculations for each.

My accounting software actually asks if I want a particular contract to be inside or outside of IR35, so it can sort out the calculations for me. Haven't tried it though because none of them have been IR35 caught.

[VectraMan]

Assuming you really are under IR35:

Yes that would be normal, however IR35, if I understand it correctly, basically forces me to spend all the incoming revenue on a salary, whether I want it or not, with the intent of the law (as I see it) to make pretty much nothing deductible except what I could claim if I were an employee of the company I contract for.

Yes that's right, but IR35 only applies to a specific contract, which means the rest of your business isn't affected by it. You effectively have two seperate businesses (and in fact it might be better to do things that way), and the IR35 restrictions only apply to any expenses or equipment you need for your IR35 caught contract, not for the rest of the business.

Effectively, all the IR35 caught income is your money, and you're loaning some of back to the company to prop up the other business. This means the company owes you money, and also that the company is operating at a loss (and you should be able to reclaim or offset those losess against CT).

[xoggoth]

Assuming that you are IR35 caught I don't see that what you spend on your other business activities is in any way deductible from what is due on the deemed salary from your contract earnings. They are not business expenses necessarily incurred in doing that caught contract and the fact that they are both done via the same company does not alter that.

Some contractors do have both caught and non caught contracts and have to do the separate calculations for each. Your case isn't really any different.

[Wanderer]

I have a limited company I intend to use for billing contracts. I accept that my contracts will fall under IR35.

As Sausage Surprise says, why do you presume you are IR35 caught? Have you read IR35:Substitution, control and mutuality of obligation :: Contractor UK ?

Do you have the right of substitution in your contract? If you do, then you are outside IR35. You can get your contract reviewed if you are really concerned about it.

Once you have established that you are outside IR35, you can start building up your business (including claiming for expenses) which was your original intention.

I have certain expenses, such as servers, web design, advertising etc

On the face of it, these are all legitimate expenses. Get your contract reviewed and go about your business. Don't let this IR35 nonsense get in your way, it's not aimed at business people like yourself.

[symphara]

Why?

Anything I buy computer related goes through the company books.

Yes that would be normal, however IR35, if I understand it correctly, basically forces me to spend all the incoming revenue on a salary, whether I want it or not, with the intent of the law (as I see it) to make pretty much nothing deductible except what I could claim if I were an employee of the company I contract for.

At least this is my understanding of the intent of the law. And obviously, if I were an employee of the company I contract for, I wouldn't buy computers for business use out of my own money, to claim their cost later. I have never seen an employee do that, and I work in IT for a good number of years.

[Nicola@Technical-E]

Hi guys,

I would appreciate your input to this situation:

I have a limited company I intend to use for billing contracts. I accept that my contracts will fall under IR35.

However I didn't set up the company for doing contract work, quite the opposite. I set up the company to develop and promote a certain software product, and now I'm doing contract work to support this, until the core business will start generating a revenue.

This means that I have certain expenses, such as servers, web design, advertising etc. and I am not sure to what extent these are deductible expenses.

Any insight on how many such expenses (if any) could be deducted from the deemed payment calculation would be greatly appreciated. I am quite wary of the fact that all these expenses could be challenged (including buying a computer, as in my contracting experience the client provides the equipment).

Hi,

If you wish a bit of information on this then PM me on here, I wil send you my contact details and I will talk you through what you can and can't claim as expenses.

Thanks
Nicola

[Mod] 'Fraid not, Nicola. Why would any one want to PM you? We don't know you from Adam. If you belong to an accountancy please read the T&C's and ask Admin to rename your login Nicola@myco, then you can post your answers on the board, as the other accountants do.

Thanks [/Mod]

[Sausage Surprise]

Hi guys,

I would appreciate your input to this situation:

I have a limited company I intend to use for billing contracts. I accept that my contracts will fall under IR35.

However I didn't set up the company for doing contract work, quite the opposite. I set up the company to develop and promote a certain software product, and now I'm doing contract work to support this, until the core business will start generating a revenue.

This means that I have certain expenses, such as servers, web design, advertising etc. and I am not sure to what extent these are deductible expenses.

Any insight on how many such expenses (if any) could be deducted from the deemed payment calculation would be greatly appreciated. I am quite wary of the fact that all these expenses could be challenged (including buying a computer, as in my contracting experience the client provides the equipment).

Why?

Anything I buy computer related goes through the company books.

[symphara]

Hi guys,

I would appreciate your input to this situation:

I have a limited company I intend to use for billing contracts. I accept that my contracts will fall under IR35.

However I didn't set up the company for doing contract work, quite the opposite. I set up the company to develop and promote a certain software product, and now I'm doing contract work to support this, until the core business will start generating a revenue.

This means that I have certain expenses, such as servers, web design, advertising etc. and I am not sure to what extent these are deductible expenses.

Any insight on how many such expenses (if any) could be deducted from the deemed payment calculation would be greatly appreciated. I am quite wary of the fact that all these expenses could be challenged (including buying a computer, as in my contracting experience the client provides the equipment).