Invoices For Expenses When Inside IR35

[Wary]

I'm have my own LTD company and am inside IR35. If I incur any expenses (hotel, meals etc), I have to raise an additional invoice and my agency will reimburse my company.

Must this also be treated as IR35 income, hence being subject to PAYE etc for a second time and restricting my ability to claim only circa 5% as expenses? Or can/should this legitimately be treated as non-IR35 money as it is simply reimbursement of money I paid personally and not for actual IR35-work? ... in which case it can presumably be used to reimburse pretty much the whole of my expenses?

Thanks

[NotAllThere]

IR35 takes your company's gross income, less allowed travel and subsistence costs, less 5%, and says that what remains is salary + ernic.

[doconline]

Just curious, but what hotel / meals / expenses are you claiming? If your client has deemed you to be within IR35, I think the only hotel / travel etc that you are able to claim would be if you were having to travel to another site not deemed your main one in your contract. If this is the case, can your client not sort out travel etc?

[malvolio]

AIUI If the expenses are genuine and allowable - as has been said, for travel to another site away from your usual place of work - then they come off your gross before you do the 95% calculation. They are outside the nominal 5% you are allowed to run YourCo under IR35.

However, I expect one of the local accountancy people will have a view.

[Glencky]

At the point where you invoice them, they are counted as income so they 'go into the top' of the IR35 calculation along with any invoiced time.

However, as others have said, allowable expenses are a deduction from the IR35 calculation later.

Example: £100k invoiced annually including the expenses invoices (I'm ignoring VAT for a minute, I'll come onto that later). 5% allowance comes off, leaving £95k. Then from the £95k you take off various deductions e.g. pensions, but also including legitimate expenses. Only after those deductions is the residual amount that must be paid as salary with full tax & both NIs.

Say you live (and your registered office) 2 hours away from your place of work, but don't claim any travel or subsistence from YourCo for getting there because you're inside IR35 so you can't. But you also sometimes need to work from the client's Dublin office so you're invoicing them for the travel & subsistence for that. The invoiced amount is part of that £100k, i.e. it does count as income, but the cost to you as an employee of the T&S you can claim back from YourCo and is included in the IR35 deemed employment calculation as a deduction.

The position becomes a bit more complicated once VAT is included, particularly FRV where you can actually 'lose money' on VAT depending on the client's policy on invoicing expenses if you do a lot of UK travel with VATable hotels on which you can't reclaim the VAT, but I'm not going to try and explain it because I think I've already answered your question!

[Wary]

Thanks all for the responses.

These are legitimate expenses, in that they've been for the occasional stay-away-from-home when working at another office. If I've understood correctly, they should have been deducted from the overall total BEFORE the salary calculation has been applied. However, it seems that my accountants have been treating these as part of the 5%.

Further to this, and before I go back to my accountants, please can someone confirm whether these should be within the 5%, or deducted prior to the salary calculation
- I claim mileage for day trips to other offices - just goes on my expense sheet as mileage (no invoice or agency reimbursement)
- Standard Business insurance (Professional Liability ...)
- Life Insurance (paid direct from the company account each month)
- Accountancy fees

I believe some of these should be covered by the 5% but possibly not all of them.

[malvolio]

You can't claim personal mileage other than to visits to other sites (or to be precise you can but such income is taxable).

What I've always understood was that at year end, you work out your gross income including any FRS VAT gains. Deduct allowable expenses, which are accountancy fees, pensions and company insurances. Deduct genuinely incurred business expenses such as your off-site visits. Pay PAYE and NICs on 95% of what remains. Put the rest in your bank account.

Obviously if you have been taking money out over the year there may have to be an adjustment to taxes paid at tax year end when the final numbers are known,

If your accountant is deducting the 5% from the gross first I suspect they are doing it wrongly, but I would defer to another accountant's expert opinion on that since it's a while since I've bothered with IR35 rules and they may have changed.

[Glencky]

Belatedly... almost what Malvolio said. Accountancy is part of the 5% but expenses like T and S are not. If you search for HMRC's dowbloadable excel Deemed Employment Calculator / IR35 spreadsheet it'll help you see the calc.

If your accountant has been treating other office travel / subsistence as part of the 5% they are wrong. Think about it like this : you would quickly be much worse off than a permie if this were so. People may or may not agree with HMRC's overall stance but it has its logic and fairness. The 5% is where they acknowledge you are not actually an employee and do have a cost of doing business, albeit not a large one. That 5% covers e.g. accountancy, stationery, Companies House etc. The allowable expenses follow same rules as for permies in equivalent position so in your examples are not taxable as they would also not be for permies, hence taken off also. Ditto pension cobts. Then the residue is full tax and NI. It is actually quite easy to understand once you think of it like that.

[Wary]

Thanks for the latest info. Looks like my accountants have messed up big-style.

Won't name names at this stage but they're one of the big-boys. This goes back to at least the beginning of 2016/17.

What course of action do I have to be put back into the position in which I would now be if it had been done correctly? ... either via HMRC if possible or compensation from the accountants? Thanks

[Glencky]

I think you've got a snowball's chance in hell of getting 'compensation' from the accountants. You could sue them, but from my (limited, admittedly) understanding there's a very limited chance of you getting anything out of them, and if you did it'd take a lot of time, effort and hassle for what I assume isn't a massive amount of money - I mean, how much do you have in travelling expenses? Even when I was in Dublin for a client pretty much every other week, the tax on it wouldn't have been that massive. Certainly way bigger than I want to lose, particularly when paying somebody professional fees not to screw up, but equally not necessarily enough to live my life fighting a losing battle for a long time over.

As far as correcting with HMRC is concerned, I'm genuinely not sure. Given you've overpaid tax here, once you've checked it out thoroughly and confirmed 100% that this is what has happened, you could do worse than to call HMRC for advice. Or perhaps one of the accountants on here (I'm not one, I just have experience of operating within IR35 with cr@p accountants so I learned a lot more than I otherwise would have done!) might enlighten.

The problem I see that is even bigger than HMRC is that your accounts filed with Companies House will also be wrong for that year...

EDIT: and what I should have said is that all my interactions with accountants since becoming a contractor have merely served to emphasise the point that it doesn't matter who you get professional advice or help from, the legal buck stops with you... and we do well to remember this. So many contractors - this BBC presenter who's just got stung on IR35 for example - seem to just rely on what the professional says, even when the professional is talking out of their arse...