Apportioning tax-deductible business expenses, between outside and inside IR35 roles

[Friendlygribbon]

Well unless you take every penny out of your company there ought to be some residual cash in the bank. You won't have any income into the company so there's a chance you'll make a loss come year end. You can use that loss to claim a CT refund against previous years or keep it to offset against future CT liabilities if you know work is coming in.

I think we're at cross purposes here. What you say is correct. My point is that ongoing expenses become dis-allowable at the point that you start an IR35 contract. They go from being valid to invalid. If I am leasing equipment and paying monthly I cease to be able to do so once I go inside. That's the point I'm trying to make. I am now aware that some agencies believe they will be able to manage these expense changes, but I think the accounting for expenses becomes difficult if you take an inside role.

[ladymuck]

Well unless you take every penny out of your company there ought to be some residual cash in the bank. You won't have any income into the company so there's a chance you'll make a loss come year end. You can use that loss to claim a CT refund against previous years or keep it to offset against future CT liabilities if you know work is coming in.

[Friendlygribbon]

Not necessarily. You just have to plan better. It's only a binary decision if you think the planning is too onerous or your prospects are all in one camp or the other.

I don't think that is correct. Can you explain why better planning would help me manage ongoing business expenses that cease to be allowable at the point of taking an inside IR35 contract?

[ladymuck]

Thanks for the replies.

It would appear therefore, in the coming months, established contractors will have to decide between:

Fully inside IR35 for all roles - Fixed term contracts for life. Plenty of potential roles (Corona virus permitting). Wind up Ltd Company

Fully outside IR35 for all roles - Continue to run as a "proper" business with almost no roles available!

Give up contracting and return to employment / unemployment.

Not necessarily. You just have to plan better. It's only a binary decision if you think the planning is too onerous or your prospects are all in one camp or the other.

[Andy Hallett]

When I did a Roundtable with some of the more clued up contractors from here, there is an opportunity around Pension for inside gigs. That said I suspect Rishi will raid Higher Rate Relief in November.

[Friendlygribbon]

Thanks for the replies.

It would appear therefore, in the coming months, established contractors will have to decide between:

Fully inside IR35 for all roles - Fixed term contracts for life. Plenty of potential roles (Corona virus permitting). Wind up Ltd Company

Fully outside IR35 for all roles - Continue to run as a "proper" business with almost no roles available!

Give up contracting and return to employment / unemployment.

[Patrick@Intouch]

It is also possible with some contractor accounting providers (ahem) to switch between trading through a limited company and using an Umbrella solution for those contracts deemed inside IR35.

This keeps the accounting simple but does mean that you'd need to have a discussion with your account to plan your income from the company in an effort to understand or manage your personal liability to tax.

The good news is that some of those same providers also don't charge anything extra for the umbrella access, allowing someone to switch between operating through their company and an umbrella as they need while maintaining statutory reporting for both.

[GhostofTarbera]

Apportioning tax-deductible business expenses, between outside and inside IR35 roles

Zero expenses can now be claimed , no dividends, no split with your wife


Also remember 95%+ of all inside contracts will require you to be PAYE or Umbella so the will pay NET into your personal account (about 54% of gross amount) so no actual buffer to pay expenses even if you could !!


Sent from my iPhone using Contractor UK Forum

[cojak]

No. See here:

What about my expenses?

That's the bad news. Apart from direct cost of materials used in performance of the services; and expenses that would have been deductible if the worker had been the client's employee, you can't claim any expenses from the company. The point has been made to Treasury and HMRC that if you have any other expenses for your company then you have no means to pay these, but there has not been any acknowledgement of this problem. If your company only does public sector work, but has to pay for mobile phones, internet, insurance, or anything else then I cannot see how the company can legally do this.

So even the 5% allowance has been taken away.

[Friendlygribbon]

Is it actually going to be possible to switch between different IR35 roles given the potential complexity to manage genuine business expenses?

My understanding is that most of the business expenses below can currently be claimed, but if you start an inside IR35 project the expenses you can claim are restricted to effectively be the same as what a permanent employee would normally be allowed to claim. (There is then 5% expense allowance).

My take on this is that it will simply be too complex to manage the business if switching between contracts, which is not what HMRC appear to be saying.

(If anyone can point me to similar threads or information on this, I’d be grateful).

Tax deductible business expenses:

• Business-related travel
• IT equipment
• Accountancy services
• Web-hosting costs
• Marketing
• Training
• Stationary
• Office furniture
• Printing supplies
• Solicitors fees,
• Tax consultant’s fees
• Marketing professional’s fees
• Certain insurance services
• Subscriptions to professional bodies
• Personal development tools, such as business publications
• Allowable Client gifts under £50
• £150 for social events
• Gift aid charitable donations