Inside IR35: What It Really Means for You as a Contractor

"The difference between inside and outside IR35 isn’t just about tax — it’s about how you work, who controls your day, and whether you’re building a business or just playing dress-up as one."

That line hit me the first time I heard it in a small workshop for contractors in London. And it stuck.

Whether you’re knee-deep in your first contract or a seasoned pro, chances are you’ve heard someone mutter those two dreaded words: inside IR35. Maybe you’ve even felt a little sweat on your brow when a recruiter casually dropped them into a call. I’ve been there.

So let’s strip it all back and talk about what working inside IR35 actually means — and how to navigate it without losing your mind (or your income).

What is IR35, and Why Should You Care?

Imagine this: You’ve set up your own limited company. You’re doing work for a client, but day to day, it feels… suspiciously like a regular job. You use their equipment. You work 9 to 5. You report to a manager. You even have to ask for holiday time.

Now HMRC (that’s the UK taxman, for those not living and breathing finance) takes a look and says, “Hang on, you look like an employee, not a business.” Boom. You’re caught inside IR35.

And what that means is: you pay tax and National Insurance just like an employee. But without any of the job perks — no paid holiday, no sick leave, no office cake on your birthday.

Sounds harsh? It is. But it's also manageable.

How Do You Know If You’re Inside IR35?

Here’s where things get murky. It's not about what you call yourself — it's about how you work.

There are three big tests HMRC uses to check your status:

1. Substitution – Can you send someone else to do your work? No? That's a red flag.

2. Control – Does your client decide how, when, and where you work? Again, that leans towards employment.

3. Mutuality of Obligation (MOO) – Are they obligated to offer work and are you expected to accept it? That’s more job-like than contract-like.

I once had a contract where the manager would review my timesheet every Friday and send me a list of changes. I had no say in how the project moved. It was a short step from “independent consultant” to “full-time temp.” Sure enough, the client classed it as inside IR35.

There’s a tool from HMRC called CEST (Check Employment Status for Tax). It’s not perfect, but it gives a general idea. Use it. But don’t rely on it alone. Chat with your accountant or a contract law advisor before you sign anything.

So You’re Inside IR35. What Now?

First, breathe. You’re not doomed.

You’ll need to pay tax under PAYE (Pay As You Earn). If you're working in the public sector or for a big private company, they usually deduct tax and National Insurance before they pay you. No surprises there.

If you’re still using your limited company, you'll need to do a "deemed salary" calculation at the end of the tax year. This means you figure out how much of your company’s income should be taxed like regular wages.

The good news? HMRC gives you a flat 5% expense allowance. This is supposed to cover your admin costs — things like accounting, insurance, even your home office. You don’t have to prove you spent it. You just get it.

I used this when I was working inside IR35 for a project in Manchester. I still paid tax like an employee, but at least I had a bit of breathing room for my business expenses.

Can You Still Use Your Limited Company?

Technically, yes. But inside IR35, it becomes more of a glorified tax filter. Your company gets paid, then passes the money to you after tax. You're not saving as much as you would outside IR35.

Some contractors move to umbrella companies when they’re inside IR35. Think of umbrellas like middlemen — they handle tax, payroll, and admin. You get paid as an employee of the umbrella. It's simpler, but they take a fee, and not all umbrellas are created equal.

Always check if they:

• Are FCSA-accredited (this helps avoid dodgy schemes)

• Charge flat weekly fees (not a percentage of your income)

• Offer decent benefits (some give sick pay or pensions)

Can You Claim Expenses Inside IR35?

Yes, but it’s limited.

You can’t claim for day-to-day stuff like you would outside IR35. But you can still claim for:

• Travel (if you’re working at a temporary site)

• Accommodation (if you’re working away from home)

• Subsistence (food while on the road)

• Direct costs (like software or subcontractors)

The trick is to track everything. I use an app that scans receipts and auto-tags them. Took me a while to get into the habit, but it’s saved me from a few nasty surprises come April.

What About the Future? Should You Avoid Inside IR35 Contracts?

That depends.

If you're just starting out, or between gigs, an inside IR35 role can keep cash coming in. No shame in that.

But long term, it makes sense to position yourself for outside IR35. That means:

• Writing solid, businesslike contracts

• Maintaining control over how and when you work

• Taking on risk and responsibility, like real businesses do

• Having multiple clients or working on project deliverables

One of my mates, Sarah, is a tech contractor. She made the switch from inside to outside IR35 by restructuring how she delivered her work. She started offering a “fixed deliverable” service and sent in her own team when needed. It changed everything.

Final Thoughts

Being inside IR35 isn’t ideal — but it’s not the end of the road either. With a bit of planning, and the right support, you can still make it work for you.

Here’s what I’d suggest:

1. Get your contracts reviewed regularly.

2. Talk to a good accountant who knows IR35 inside and out.

3. Keep records, track expenses, and know your rights.

And remember — contracting is a journey. Not every step will be perfect. But with the right tools, you stay in control.

If you're ever unsure, ask. No question is too small when it comes to HMRC!

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