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Inside IR35 and Expenses

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    Inside IR35 and Expenses

    I am working in the public sector, in scope, through an agency. No room for me to argue I'm out of scope as I'm covering a perm role until the recruitment is completed. The agency and PSB have been reasonably understanding given the circumstances and both have agreed I can continue to be PSC.

    I work away from home Monday to Friday and pay my own expenses, which includes my hotel bill and travel. To be clear I travel around 150 miles on a Monday and then back again on Friday and stay in the same hotel every night. The PSB has indicated it has in principle no objection to paying my hotel bills and adjusting my rate with the agency but it will declare these as benefits in kind so I don't think that helps me.

    We all know that under the rules the expenses can't be set against tax at source as employees and ers tax are payable at source with income tax which puts me in a difficult situation.

    My question is one I haven't seen asked before. Can I still continue to charge my hotel and travel expenses to my limited company, albeit the company has no funds to pay them (in the same way it has no funds to pay for my website or insurance etc.) as all the tax has been deducted at source?

    Clearly the limited company would be loss making and insolvent (which I would be prepared to support through a directors loan) but I'm thinking that at some future point if I got a contract outside IR35 I then have more options which would include either paying the expenses or paying back the directors loan.

    Also, by charging the hotels bills against my limited company I can at least offset the input VAT on the hotel bills against my total output VAT bill (noting I've been screwed on the flat rate scheme which I've now de-registered from)

    Any help would be greatly appreciated.

    #2
    Inside IR35 you are not allowed personal tax relief on expenses, they are treated as income. Inside IR35 you are to take all your gross less 5% as salary, leaving not a lot in the company. You can't leave money in the company other than that 5% (talking a single contract income here for clarity) so, as you say, there is little or no income to cover the expenses. Leaving aside this possible accusation of evasion by not declaring income correctly, you are in effect trading insolvently delibertely, i.e. spending money you don't have. So that would be illegal. So probably not a good idea.

    All very much IMHO - happy to be corrected by an accountant who knows the rules.
    Blog? What blog...?

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      #3
      There's nothing wrong with trading insolvently when you are legitimately borrowing money to do it and the person from whom you borrow it knows the picture. Millions of startup companies have done it. I did it myself when I started, loaned MyCo money to buy some computer hardware and cover some other expenses before my first contract started.

      In this case, it won't do any good. If YourCo pays your expenses, you'll have to declare them as a BIK.

      Although it may help with the new flat rate VAT rules if you can count that towards output VAT. Not really up on the flat rate VAT stuff, somebody else would have to answer that.

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        #4
        Originally posted by malvolio View Post
        Inside IR35 you are not allowed personal tax relief on expenses, they are treated as income. Inside IR35 you are to take all your gross less 5% as salary, leaving not a lot in the company. You can't leave money in the company other than that 5% (talking a single contract income here for clarity) so, as you say, there is little or no income to cover the expenses. Leaving aside this possible accusation of evasion by not declaring income correctly, you are in effect trading insolvently delibertely, i.e. spending money you don't have. So that would be illegal. So probably not a good idea.

        All very much IMHO - happy to be corrected by an accountant who knows the rules.

        I'm inside IR35 and working for a PSB. Thus the 5% allowance has been removed too creating the perverse situation that all income from the PSB is taxed at source and I cannot even set off the costs of my insurance for working for them. There is therefore nothing left at all to pay insurance, website, a mobile phone or anything else. Most of it I can live with but the costs of my hotel mean in order to pay a £50 hotel bill I have to earn £100 before tax and NI, probably more. My company is going to be trading at a loss regardless after I've charged it for the website, insurance, companies house fee and other incidentals.

        I find it very frustrating as without being able to expense my hotel bills as an expense it effectively means it makes no economic sense to do a job where I have to stay away as the rate doesn't compensate.

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          #5
          Originally posted by CC2017 View Post
          My question is one I haven't seen asked before. Can I still continue to charge my hotel and travel expenses to my limited company, albeit the company has no funds to pay them (in the same way it has no funds to pay for my website or insurance etc.) as all the tax has been deducted at source?

          Clearly the limited company would be loss making and insolvent (which I would be prepared to support through a directors loan) but I'm thinking that at some future point if I got a contract outside IR35 I then have more options which would include either paying the expenses or paying back the directors loan.
          Can't see anything wrong with that. Inside IR35 the 95%-tax (or I guess 100% if it's deducted at source) is effectively your money, whether it's still in the company account or not. Where expenses aren't allowed they're just deducted from the amount the company owes you, so the company isn't insolvent or going into the red; it's coming out of your money.

          If it's unrelated to the contract (say paying for a website) then that's different and you are in a way "trading whilst insolvent", though that term applies to companies that take customers' money for goods or services they can't fulfill, which obviously you aren't. You can prop up the company indefinitely with director's loans, and then if you make any outside-IR35 money in the future pay it back without it counting as income.

          Not sure about VAT. If the tax is now deducted at source, where does that leave the money you get back from reclaiming VAT? Is that now counted as profit, or does it count as part of the IR35 income?
          Will work inside IR35. Or for food.

          Comment


            #6
            Its all a big mess, and after contracting 17 years I decided to hang my contracting boots up. I got a quote from an Umbrella for a role in the NHS and it was absolutely not worth doing the work with the stoppages. I don't think some people actually realise how being unable to claim Hotels, Travel, and subsistence and such have affected contractors and I absolutely refuse to bend over backwards to try and accommodate public sector rules, wait until you start getting HMRC notification of Tax Code through with "we believe you receive a benefit in kind for xxx " and your tax code is altered accordingly. I have been there and it took an age to resolve with accountants and paying monies to HMRC. Like the OP (and a lot of other contractors) I have left home on Sunday/Monday to return Friday after a week in a hotel. I smile when an agency rings and offer me roles no where near where I live those days have long gone buddy !
            Careful what you do guys, I know we all think "how can I claim this and that" but be aware It can all come around to bite you on the bum in a couple of years time, and locking horns with HMRC is a pass time I choose to pass on thanks

            So for me its a new career, I am still going to be self employed I have decided to be a deliveroo rider ! Yes !! Proper Self Employment, good pay and remuneration, rapidly growing industry plenty of work, going to be great sat on the town centre with the other riders in that smart uniform waiting for the next call to deliver a butty (probably to some bone idle overpaid I.T. Contractor) Its the future ! Oh hang on a minute....just Googled working for them....errrrrrrm
            Last edited by Yonmons; 1 May 2017, 12:36.

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