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Office Hours: 9am to 5.30pm

What Expenses Can You Claim When Inside IR35?

It is understandable that many contractors remain concerned about how being inside or outside IR35 will affect them. Whether you are inside or outside can alter your tax contributions and take-home pay. Therefore, both client and contractors need to have a firm understanding of their working relationship to ensure it remains fair.

Inside IR35

If you are caught byIR35 and are deemed to be inside, you will need to pay income tax and nationalinsurance contributions to HMRC. You do this just as you would when operatingas an employee through the PAYE system. The introductionof the IR35 legislation aimed to stop workers from taking advantage ofself-employment benefits when they serve as employees. As a result, if you fallinside IR35, you will no longer be able to make your payments more efficientthrough the combination of a low salary and high dividends. This is where muchof the controversy surrounding the IR35 legislation stems from as manycontractors end up paying significantly more tax.

5% expenses allowance

One IR35 factor that is often overlooked is the 5% expense allowance. This is set out by HMRC for contractors that fall inside the legislation. The allowance is designed to enable contractors to claim back 5% of their generated income. It should cover the cost of running a company. However, this has recently been scrapped for contractors working in the public sector. They need to pay tax like any other employee. Those working in the private sector can still claim their 5% allowance to maximise their earnings post-tax.

Claiming tax relief

No matter whether you work in the public or private sector, contractors inside IR35 can claim tax relief on pension contributions made on the contractor’s behalf. But those inside IR35 cannot claim on everyday expenses like travel, mileage, hotels, and meals. This is a high-priority concern for HMRC who will reclassify these earnings. As a result, you will need to pay tax on any incorrectly claimed travel and subsistence allowances.

IR35 reviews

Many contractors would prefer to be found outside IR35 as you take home more. So, it is imperative that you are subject to a thorough and fair IR35 review which shows your employment status accurately. While you shouldn’t attempt to avoid tax payments by masking your true employment status, sometimes the line between self-employment and being an employee can be confusing. Having a contract assessment is a great way to show that you have operated ‘due diligence’ in determining whether you are inside or outside of IR35. It can reduce the risk of you running into penalties if HMRC challenges your IR35 status in the future.

The benefits of being inside IR35

While you may have topay more tax, and your ability to reclaim travel and subsistence allowances areeliminated, there are still some benefits to being found within IR35.Firstly, it means the contractor or client cannot experience costly bills forback taxes, interest and penalties from HMRC if caught outside when they shouldbe inside. It is also compatible with the VAT flat rate scheme. Flat ratebenefits can still be accessible when you are inside IR35.

If you want help determining your IR35 status, and howto maximise the benefits of your current situation, Come to One Click Group. We can give you the expert advice you need to help you adapt your employment status to and keep you either inside or outside of IR35. Get in touch with us today on 0345557 1287 to see what we can do.

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