If your Contract is Outside IR35 you have freedom to claim many more business related expenses than if your contract were Inside IR35. Claiming expenses is a great way to reduce your Income Tax & National Insurance liability.
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Expenses and ‘Outside IR35’ Contracts
If the contract your limited company is working further to is considered to be ‘Outside IR35’ you may be able to claim a wide range of genuinely incurred business expenses.
As you are providing consultancy services and are not deemed to be a ‘disguised employee’ of the client it may be possible to claim company administration expenses such as the cost of your business premises, Accountancy and Tax advice, Professional Insurance cover etc.
These business administration expenses are on top of business expenses incurred further to work on a client site (e.g. travel and subsistence).
Expenses and ‘Inside IR35’ Contracts
However, where your limited company is working further to a contract that is ‘Inside IR35’ you will find that you are restricted by the HM Revenue and Customs on what business administration costs you can claim.
The HMRC will only allow you to claim 5% of contract income as an administration expense allowance where Inside IR35.
This allowance covers company administration expenses such as:
- Business premises
- Accountancy and Tax Advice
- Contract finding costs
- Professional Insurance Cover
- Computer equipment
- Training costs
- Bank charges
The 5% expense allowance can be claimed by a Contractor at the end of the financial year once an IR35 calculation has been undertaken.
The IR35 calculation would look at all contract income generated by the limited company in the financial year and work out the proportion that was earned further to contracts considered Inside IR35. Receipts should still be kept with regard to any claims made against Corporation Tax.
Site Based Expenses
IR35 only affects ‘business administration’ expenses incurred by the company; it does not affect site based expenses such as travel to and from the client site, overnight stay in a hotel or B&B, site based subsistence etc.
Freelance contractors only need to ensure that they are complying with Site Based Rules when claiming expenses further to a temporary client site.
Umbrella Company Expenses
If you are working on a number of assignments that are considered to be Inside IR35 you should probably use an umbrella company solution to deal with contract income.
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