If you’re working inside IR35, your tax situation changes—you pay more tax and can claim fewer expenses. But there are still ways to reduce your tax bill legally.
This guide will help you understand:
✅The difference between inside vs. outside IR35
✅What expenses you can and cannot claim
✅Tax-saving strategies to maximise your take-home pay
| Feature | Inside IR35 | Outside IR35 |
| Tax Status | Treated like an employee | Treated like a business owner |
| Income Tax & NI | Paid before expenses | Paid after expenses |
| Claimable Expenses | Limited | Many deductible expenses |
| Take-Home Pay | Lower | Higher |
| Control Over Finances | Restricted | More flexibility |
Bottom line? If you’re inside IR35, your tax is deducted first, so you need to be smart about what expenses you can still claim.
Even though most business expenses aren’t deductible, you can still claim:
Mileage & Transport – If your contract is under 24 months and your work location is temporary, you can claim:
Accommodation & Meals – If your job requires overnight stays, you can claim:
Important: If you work at the same place for over 24 months, these expenses are no longer claimable.
You can claim membership fees for recognised industry bodies, like:
Check HMRC’s approved list of professional organisations for eligibility.
One of the best ways to reduce your tax inside IR35!
💡 Pro tip: Use a salary sacrifice scheme to maximise savings!
You can claim costs for training courses that:
Keep your skills updated.
NOT for learning a new career skill (e.g., switching industries).
If your job requires specific equipment, you can claim:
Laptops, software, and office supplies (if used for work).
Work tools or safety gear (if necessary).
📌 Tip: The equipment must be essential for your contract. Personal use should be minimal.
You can claim costs for:
Professional indemnity insurance
Public liability insurance
Employer’s liability insurance
💡 Why it matters? Protects you against legal claims while contracting.
Many contractors wrongly assume they can claim these expenses. You can’t!
Home Office Costs – No tax relief on rent, internet, or utilities.
Client Entertainment – Meals, gifts, and drinks for clients aren’t deductible.
Clothing & Uniforms – Unless it’s mandatory safety gear, personal clothing isn’t claimable.
Marketing & Advertising – Can’t claim costs for websites, ads, or branding.
To understand how claiming the right expenses can affect your take-home pay, let’s look at a real-world example:
James is a self-employed IT consultant earning £60,000 per year on a contract that falls within IR35. Since he is inside IR35, his client deducts Income Tax and National Insurance (NI) before paying him, just like they would for a regular employee.
Without expenses, James’s take-home pay looks like this:
| Earnings & Deductions | Amount (£) |
| Annual Gross Income | 60,000 |
| Income Tax & NI (Approx. 30%) | -18,000 |
| Take-Home Pay | £42,000 |
However, James is smart about his finances. He maximises allowable expenses to reduce his taxable income. Here’s what he claims:
✅ Pension Contributions: £6,000/year → Tax-free
✅ Professional Membership Fees: £500/year
✅ Essential Equipment (Laptop & Software): £1,500
✅ Travel Expenses (for client visits): £2,000
✅ Work-Related Training: £1,000
Because these expenses are deductible, James reduces his taxable income from £60,000 to £49,000, lowering his overall tax bill.
| Earnings & Deductions | Without Expenses (£) | With Expenses (£) |
| Annual Gross Income | 60,000 | 60,000 |
| Claimable Expenses | 0 | -11,000 |
| Taxable Income | 60,000 | 49,000 |
| Income Tax & NI (Approx. 30%) | -18,000 | -14,700 |
| Take-Home Pay | 42,000 | 44,300 |
James keeps an extra £2,300 per year by correctly claiming expenses.
🔹 Pension contributions are one of the most effective ways to save tax.
🔹 Even small expenses (like professional fees and travel) add up over time.
🔹 Knowing what’s allowed under IR35 can make a big difference in take-home pay.
📌 Lesson: If you’re inside IR35, claim every expense you’re entitled to—it could save you thousands per year!
Even though you pay more tax, here are four ways to keep more of your earnings:
✔ Use a PAYE Umbrella Company – Some offer expense reimbursement schemes.
✔ Maximise Pension Contributions – Redirect income into a tax-free pension scheme.
✔ Claim All Eligible Expenses – Keep receipts and follow HMRC rules.
✔ Get a Specialist Contractor Accountant – They can save you money legally.
✅ You CAN claim: Travel (if under 24 months), professional fees, pension contributions, training, equipment, and insurance.
❌ You CAN’T claim: Home office costs, entertainment, non-uniform clothing, or marketing expenses.
💡 Want to reduce tax? Pension contributions and professional tax advice are your best bets.
Next Steps:
🔍 Check HMRC’s expense rules: www.gov.uk
📞 Speak to a contractor accountant for personalised tax advice.