IR35 5% expenses - help please

PPJ

Hi all,

I have been working as a contractor for a couple of years. I have worked 'inside' IR35 from the start.

The IR35 rules state that you can claim an expense allowance of 5% of turnover when calculating deemed salary and I have done this (or at least my accountant has).

However, the only expenses I have actually paid from the company account are accountancy fees plus one or two other minor things. This comes to less than 5%, so there is a moderate excess in the company account.

Can I simply pay myself the balance of the 5% to cover the things the company account has not specifically paid for (like using the home as an office, computer equipment etc)?

Thanks.

WHA

You can claim all legitimate expenses from your company - whether that be more or less than 5%. The 5% is only used to calculate the "deemed salary" - i.e. your wages, it is not an automatic "right" to show as an expense in the company accounts. By all means, make legitimate claims to use some or all of the remaining 5% - your accountant should be able to help you work out how much you can claim for "use of home", office supplies, home telephone/broadband, computer equipment, etc - i.e. all the normal expenses that can be claimed but aren't allowed for IR35 purposes. What you can't do is just "take" an amount in lieu of the 5% without supporting documentation and justification. If you can't make up the 5% in legitimate expenses, then you can either leave it in the company and carry it forward, or alternative pay it out as a dividend.

By the way, are you SURE you are caught by IR35 - have you had your contract reviewed by one of the specialist accountants/lawyers? In my experience too many people have "opted in" to IR35 without proper advice. Is your accountant an IR35 specialist? There are just one or two "deal breaking" clauses in your contract which will decide IR35 or not - these are not properly understood. As you will realise, the difference between being caught and not being caught can easily amount to several thousand pounds in tax and NIC every year. Not a decision to be taken lightly or without the experts review.

PPJ

I think I have a couple of critical clauses in my contract which mean that I am definitely caught. Firstly, only I can do the work, unless I get written permission from the client. Secondly, I can't work for anyone else, unless I get written permission from the client.

So really, I am a "virtual employee" and this is just the sort of situation for which IR35 was meant. Fair enough, I suppose. I took all this into account when I negotiated my rate with the client.

On the topic of legitimate expenses, would this include relatively costly, single items, like a PC for example?