Dear Contractor Doctor,
I run a one-man IT consultancy with my own limited company. However, I also run a side business of DJ-ing through the same company. As I am gaining income from both sources, is it valid, in the eyes of HMRC, to expense DJ equipment, new records and such like through the same company? My accountant said this should be ok even though the IT side of things provides the majority of the incoming money.
Does running two business in one also reduce the likelihood of falling under IR35?
Thanks in advance,
Mr. S. Loveridge.
Contractor Doctor says:
There is no reason why contractors may not run as many businesses as they like from their limited companies.
Simon Sweetman, a Felixstowe-based tax consultant referred by the London-based Federation of Small Business, explains: ''There is no legal or fiscal restriction on the activities a contractor may run through a limited company. The only limits set on these activities are by any other shareholders in the company, and these would be expressed in the Memorandum of Association. But in general, the Memoranda are worded in a very general way today and usually pose no obstacle.''
Sweetman points out that you should account for each activity separately, although you are free to deduct expenses from either activity from your total earnings.
If you run a loss from one activity, you can compensate for it with profits from your other activity. But you should be careful if you run a loss in both activities, Sweetman points out, and be sure that you have funds saved up to cover the loss. You can carry the loss over into the next year, Sweetman says.
You are free to run as many activities as you like from your limited company
Simon Sweetman-tax consultant
You should also be careful if you decide to sell one of the businesses, Sweetman points out. You would want to sell the business on the basis of personal capital gains tax, which is lower than the corporate one. Having two activities might make it more difficult to make the sale under the personal regime, so you would be well advised to take advice if you do consider selling an activity off.
But on the question about IR35, you wouldn't be able to use the separate activity to justify being outside IR35 in your IT consulting. The Revenue would simply consider each activity separately and evaluate your status on a respective basis.
Good luck with your contracting!