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IR35 allowable expenses

What is allowed?

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I have a client whereby some contracts are deemed under IR35 and some aren't - this is new this year.

For the corporation tax computation, what other expenses are allowable? i.e. are accountancy fees/telephone etc still allowable but not travel costs associated with the IR35 travel? I know how the deduction for salary works.

If the company was to pay for travel expenses associated with the IR35 - even if no corporation tax relief was given would this lead to a benefit in kind?

I am just trying to get my head around it.

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By SXGuy
16th Jan 2020 10:50

Expenses related to the company have nothing to do with IR35 surely?

I understand there is some argument with regards to whether you show the net payment as turnover, or the gross and place the deductions in expenses, but unless im missing something, I don't see what that has to do with usual company expenses.

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By Matrix
16th Jan 2020 12:24

I thought you were allowed a buffer for expenses in your IR35 calculation?

I would offset the above expenses against the non IR35 income, except the travel to this “job”.

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By cfield
20th Jan 2020 20:57

IR35 has nothing to do with corporation tax apart from the fact that any Deemed Payment is a deductible expense. The usual rule applies; i.e. it must have been wholly and exclusively incurred in the course of the trade.

Hence, travel expenses incurred for the purpose of attending a workplace in order to generate fee income for the company must be allowable. It does not matter a whit if the contract was caught by the IR35 rules. That is a totally separate ball game.

However, if the travel expenses were incurred by paying an expense claim to the person making that journey, or paid directly by the company, and that person is an employee or director of the company, then it will be taxable under PAYE as employment earnings, unless it is exempt under the temporary workplace rules.

Hence, it is not worth claiming travel expenses unless they are tax free for the traveller. Otherwise, he is likely to pay more tax and NI than the company saves.

Some notable expenses allowable against corporation tax but not against IR35 are stationery, postages, training courses, periodicals, telephone bills and of course accountancy fees. Against IR35, you can only claim travel and subsistence which is not ordinary commuting, pension contributions, professional subscriptions, capital allowances and anything else an ordinary employee could have claimed in the Deemed Payment calculation.

The 5% allowance is only relevant for IR35 and is going out of the window even for that soon with the introduction of the new private sector rules, as it already has for the public sector. I assume you will only be able to claim it for contracts where the worker is still allowed to decide his/her own IR35 status, for example, where the client is a small company.

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