Where an engagement falls within the IR35 rules the legislation will allow for two types of deduction to be made in calculating the salary on which tax and NICs must be paid.
First, a deduction may be given for expenses paid by the Personal Service Company which you would have been allowed to claim, under the normal employment income rules, had you paid them as part of an employment. These are, broadly, certain travel expenses, other expenses wholly, exclusively and necessarily incurred in the performance of the duties of the relevant engagement, and certain specific items such as some professional subscriptions and premiums for professional indemnity insurance. You will need to keep records to identify expenses which qualify. More details are in HMRC booklets 480 and 490.
Secondly, the company will also be allowed to deduct a flat rate amount of 5 per cent of receipts from relevant engagements, in calculating the minimum salary on which tax and NICs must be paid. This will be allowed automatically, and need not be set against specific expenses.
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