If you provide professional services via a limited company (most typically as an IT contractor), and your contracts are caught by the IR35 rules, what expenses can your company claim against tax?
The 5% Administration Allowance
‘Personal service companies’ (an HMRC term) can claim a flat rate 5% of the gross income generated by IR35-caught engagements for ‘administration expenses’, without the need to keep receipts or prove expenditure.
This allowance is intended to cover the cost of running a limited company, including accountancy fees, IT training, stationery, telephony costs, broadband charges, and computer equipment.
If your work is only partly caught by IR35, then the deemed payment calculation (which includes the 5% allowance) is applied to just the proportion of your annual turnover which relates to IR35-caught engagements.
Section 336 Expenses
In addition to the expenses covered by the 5% allowance, limited companies caught by IR35 can also claim for expenses under s.336 of the Income Tax (Earnings and Pensions) Act 2003 (previously covered by s.198 of the ICTA), including:
- Travelling expenses for business purposes.
- Subsistence expenses, such as the cost of accommodation and meals when working away from your usual workplace.
- Payments into an executive pension scheme.
- The cost of business insurance cover, such as professional indemnity insurance.
- Professional subscriptions.
The ‘deemed payment’ calculation
When working out the ‘deemed payment’ if your work is caught by IR35, the 5% expenses allowance is deducted as the first step.
You can read how to calculate the deemed payment on the HMRC site here.
Read HMRC’s FAQs on the topic of IR35 and expenses here.