Contractor Expenses Inside IR35

WorriedContractor

I've been working Inside IR35 since the Off Payroll Reforms, and I've been fully remote since the pandemic.

My new client is expecting more time in the office (London) when I live in Scotland, I need some new office equipment (chair, desk, peripherals) and my WFH running costs are increasing all the time...

Long story short, the client, consultancy and umbrella won't get involved in any expenses discussion and all say to sort it out via Self Assessment. 

I guess I'm happy to do that, but I'm unsure what I'm able to claim for.

1) For the office equipment and running costs, are these deductible as they meet the wholly/necessary/exclusively rules?

(Note: my house has a small detached annex which I use as my office. There's no dual use element at all, and the heating/broadband bills are already separate from the main house so no estimations of splits required).

2) Then for any travel/accommodation expenses, I think that should fall under the "temporary workplace" rules as my contract is fully remote, the expected duration is less than 24 months and I'll not spend more than 40% of my time there (it'd be no more than 10% maximum I'd guess).

Is this deductible?

If any of these can deducted is it as simple as "Gross salary less deductible costs + other income = taxable income?"

Any guidance from you knowledgeable folks would be really helpful

Grumpy_chap

WorriedContractor said:

I've been working Inside IR35 since the Off Payroll Reforms, and I've been fully remote since the pandemic.

My new client is expecting more time in the office (London) when I live in Scotland, I need some new office equipment (chair, desk, peripherals) and my WFH running costs are increasing all the time...

Long story short, the client, consultancy and umbrella won't get involved in any expenses discussion and all say to sort it out via Self Assessment. 

I guess I'm happy to do that, but I'm unsure what I'm able to claim for.

1) For the office equipment and running costs, are these deductible as they meet the wholly/necessary/exclusively rules?

(Note: my house has a small detached annex which I use as my office. There's no dual use element at all, and the heating/broadband bills are already separate from the main house so no estimations of splits required).

2) Then for any travel/accommodation expenses, I think that should fall under the "temporary workplace" rules as my contract is fully remote, the expected duration is less than 24 months and I'll not spend more than 40% of my time there (it'd be no more than 10% maximum I'd guess).

Is this deductible?

If any of these can deducted is it as simple as "Gross salary less deductible costs + other income = taxable income?"

Any guidance from you knowledgeable folks would be really helpful

The rules permit expenses to be deducted from your gross fee by the UC for any expenses that an employee would be able to claim.  That is the most advantageous method as it avoids Apprenticeship Levy, Employer NI, Employee NI and Income Tax.
Many UCs will not allow such expenses to be deducted unless reimbursed (added to your gross fee) by the end Client.

That leaves you with claiming permitted expenses via your self-assessment tax return which allows the Income Tax to be recovered.
Expenses must be wholly, exclusively and necessarily incurred, as you noted.  The challenge that may present for any claim is why the employer was not so meeting such costs.
Responding to the queries:

1)  You probably cannot claim the office equipment or running costs on actual cost basis.  You may be able to claim the WFH allowance (£6 per week which means £1.20 for a basic rate 20% income tax payer).  The eligibility for this allowance have narrowed but, based on the limited information in the thread, it seems as though you may still be eligible.
https://www.gov.uk/tax-relief-for-employees/working-at-home

2)  Travel and accommodation / subsistence are probably best separated.  Comments in both cases are based upon a wholly remote contract as indicated.
2a) Travel from your home to the office will be allowable as an expense via your SA tax return. 
2aa)  Either mileage at 45 pence per mile (up to 10k miles) then reducing to 25 pence per mile.  That equates to a reduction of income tax liability of 9 pence per mile (reducing to 5 pence per mile) for a basic rate 20% income tax payer).
2ab)  Or train / flight travel reimbursed at actual cost, usually for standard class carriage.  
2b) Accommodation and subsistence - claim via SA tax return for actual costs incurred based upon "reasonable" standards.  You don't have to limit yourself to the cheapest dive hotel or barely edible dinner, but nor would dinner at the Savoy and a night at the Ritz be likely to pass the "necessarily" part of wholly, exclusively and necessarily.  Even if the costs are not reimbursed by the end Client, it can be useful to match the level of hotel and dining limit to the range of levels that would be covered by the end Client's expenses policy (if you have access to the same).

I do think, if there is a change of the end Client requiring more travel to the London office and you are based in Scotland, to have a discussion with the end Client about those expenses being covered.  Direct reclaimed expenses might be the more obvious solution, but I have found that Clients seem to prefer to cover costs via a rate adjustment than get involved with expenses.  Be flexible and you are likely to secure more.  Another £25 per day makes £125 per week and may well cover the majority of the expenses.

If expenses come down to yourself to cover, one has to presume that you are able to select the most favourable method of achieving the necessary outcomes.  Are you able to discuss with the end Client some regularity as to when the attendance at the office will be required?  If you know it is Tuesday and Wednesday every other week, you can book the hotel in advance and secure favourable rates.  If you know it is Thursday every week, you may be able to book flights in advance and, again, secure favourable rates.  You may meet some resistance in matters such as flights if that is not aligned with the end Client's expenses policy but, if you are meeting the cost, then it must be for you to select the most cost effective solution.  It is entirely feasible to fly from (some parts of) Scotland to London and return the same day, thus avoiding overnight costs plus flight may be cheaper than mileage / train.  If the end Client wishes to constrain the mode of transport, then that gives more strength to the end Client reimbursing expenses.

Hope that helps.

WorriedContractor

Thanks so much for the reply.

As you've noted, the Umbrella will not get involved, regardless of the merits of the situation. I guess they can't police thousands of individual contractors and blanket bans are the easiest way for them to manage. 

The client is holding fast on rates (haven't increased any since 2020) but the way the market is just now I'm just happy not to be on the bench.

It's a shame about the running costs / office costs as I do feel they're genuine business expenses but I'm not too fussed about these in the grand scheme of things.

For flights/hotels, though, when it comes to the SA do I just deduct the costs from my taxable income, same as I used to when calculating gross profit? Or is there more to it?

The way things are structured it's more likely to be a week in London every 8-10 weeks, so enough to make a difference.

Grumpy_chap

Yes, it is tough really with the way UCs operate, but they do have very low margins and that forces a race to the bottom I suppose on service.  It does make inside IR35 the worst of all worlds - taxed like an employee but none of the security and easily ditched like a contractor.

The market is tough in some sectors, but over 5 years the end-Client really should understand the need for rate to move.  They will charge more to their customers and their staff will have received pay reviews.  Even without those elements, the inside-IR35 contractor needs an uplift to cover the NI changes.  Does your rate still reflect the market?  Was it at the higher end when you began the contract?  It can be common that contracts are good at the start and rate never changes until the delta from market rate forces the individual to move.

I just checked my SA return for last year.  I entered the WFH (£6 per week allowance) in the employment page box 20 and I entered the mileage and travel (train) expenses in box 17.  I did not have any accommodation but that looks like it would also be included at box 17.  I kept a detailed spreadsheet for every expense through the year so there is back-up to the claimed employment expenses if needed.

The profile of one week every so often at the London office probably works better for you than one day each week as that shows it as clearly an irregular and occasional event and not a "normal" place of work (for which commuting expenses would not be permissible).

The best opportunity for minimising taxation when working via UC is to maximise pension contributions.

DullGreyGuy

WorriedContractor said:

For flights/hotels, though, when it comes to the SA do I just deduct the costs from my taxable income, same as I used to when calculating gross profit? Or is there more to it?

No, you put your full salary and taxes from your P60 into the employment form then put your travel and subsistence expenses into box 17 on the same form

You do self assessment already? If not and your expenses are under £2,500 per year there are other options. 

As a reminder a copy of the employment form is here