IR35 Expense Rules: What Can You Claim Inside vs. Outside?
~6 min read
Figuring out what expenses you can claim as a contractor can feel like tiptoeing through a minefield, can't it? Especially when IR35 comes into play. One minute you think you've got it sussed, the next you're wondering if that train ticket to the client's office is a legit claim. Well, grab a cuppa, because this guide is here to clear things up and explain what you can typically claim depending on whether you're Inside or Outside IR35.
Claiming Expenses When You're Outside IR35
Right, so if you're operating Outside IR35 through your own limited company, you've generally got more leeway with expenses. The golden rule from HMRC is that any expense must be "wholly and exclusively" for your business. Think of it like this: if you didn't have your business, would you still be buying this thing? If the answer's no, it's probably a business expense.
Common things you might claim include:
- Office Costs: Your home office setup, a portion of your utility bills if you work from home, stationery, postage – that sort of stuff.
- Travel: Journeys to your client's site (that's not your regular commute, mind!) or other business-related travel.
- Equipment & Software: Your work laptop, specialist software subscriptions, maybe even your business mobile phone.
- Training: Courses that genuinely help you do your job better or keep your skills up to date.
- Professional Fees: Your accountant's fees, professional body memberships, and business insurance.
We've got a more detailed rundown in our guide to navigating business expenses when Outside IR35, so be sure to check that out.
What About Expenses When You're Inside IR35 (via an Umbrella)?
This is where things change quite a bit. If your contract is Inside IR35 and you're working through an umbrella company, you're essentially an employee of that umbrella. This means the list of claimable expenses shrinks dramatically.
Forget about claiming for your home office or your accountancy fees for your limited company (if you still have one for other work). For Inside IR35 engagements, those generally can't be offset against this income.
So, what *can* you sometimes claim?
- Travel to a temporary workplace: This is a tricky one and the rules are quite specific. Generally, if your contract means you're travelling to a workplace that isn't your permanent one for that specific job, some travel and subsistence costs *might* be allowable. But it's become much rarer for most umbrella contractors due to changes in legislation. Always check with your umbrella!
- Specific client-reimbursed expenses: If your end client or agency has agreed to reimburse you for certain expenses directly related to the job (and it's all above board), these would typically be processed without tax.
- Pension contributions via salary sacrifice: If your umbrella offers it, this is a smart move. You agree to reduce your gross salary, and that amount goes into your pension before tax. It's a tax-efficient way to save.
The umbrella company's margin (their fee for processing your pay) is a cost of your employment through them; it's not an expense you claim back in the traditional sense. It's deducted before your gross pay for tax is calculated.
And If You're Inside IR35 but Paid Directly by the Client/Agency?
Sometimes, if a contract is Inside IR35, the client or agency might put you directly onto their payroll (PAYE). If this happens, you're treated just like any other employee when it comes to expenses.
This usually means you can't claim business running costs against this employment income. There are some very specific work-related expenses that employees can claim tax relief on (using a P87 form, for example, if your employer doesn't reimburse you), but these are typically quite limited for contractors in this situation. Things like professional subscriptions if essential for your job and paid by you might fit here.
The Key Differences: A Quick Summary
| Scenario | Typical Expense Scope |
|---|---|
| Outside IR35 (Ltd Company) | Wider range of "wholly & exclusively" business costs (office, travel, training, equipment, etc.) deductible from company profits before Corporation Tax. |
| Inside IR35 (Umbrella Co.) | Very limited. Mainly restricted to specific travel to temporary workplaces (if rules apply), client-reimbursed expenses, and salary sacrifice pensions. Most general business running costs not claimable against this income. |
| Inside IR35 (Direct PAYE) | Treated as an employee. Extremely limited, similar to any standard employee (e.g., some professional subs via P87 if not reimbursed). |
A Few Important Things to Keep in Mind
- Keep good records! Honestly, this is crucial. Whether it's invoices, receipts, or mileage logs, if you can't prove it, you can't claim it.
- Rules can change. Tax is a bit of a moving target. What's okay today might not be tomorrow. If you're ever unsure, getting advice from a contractor-savvy accountant is always a good shout.
- Beware of dodgy schemes. If an umbrella company or advisor promises you can claim loads of expenses when you're Inside IR35, be very wary. If it sounds too good to be true, it probably is, and could land you in hot water with HMRC.
So, there you have it. Understanding your IR35 status is the first step to figuring out your expenses. It makes a huge difference! Why not pop your figures into our IR35 calculator to see how your status might affect your take-home pay?