IR35: Working from Home

Q. I have been working for a client for about 18 months now, but I work from home and hardly go to the clients site, should I still take out IR35 insurance?

A. Although providing your services remotely indicates control and financial investment, it does not make you exempt from IR35.

There are vital areas that need to be demonstrated to reduce your risk of falling inside of IR35 such as substitution, control and mutuality of obligation. I will explain each of these tests in more detail:

Substitution – A contractor should have the right to send a substitute to provide the services on their behalf. It is often the case that this is never actually exercised, though it is essential to demonstrate that the right exists in reality. The original contractor must remain responsible for successful completion of the services, with the end client’s only right of veto being on reasonable grounds such as insufficient qualifications and/or lack of experience. The contractor must also be responsible for paying any substitute.

Should you provide a genuine substitute, even for just one day, this would be sufficient to pass the actual substitution test on HMRC’s Business Entity Test.  This will result in you obtaining a low risk score. You will need to ensure you fully evidence the substitution.

Control – The degree of control exercised by the client over how the services are carried out, as well as when and where the contractor does the work is highly important. It is essential that you have reasonable autonomy over the execution of the services. It is understandable that the client will want to liaise with the contractor over what needs to be done, but the contractor should then be left to use their own working methods and initiative to complete the services.

As stated in your question, you clearly do have control over where the services are provided, which is positive from an IR35 perspective. Demonstrating control over where, when and how the services are provided are strong indications of control.

Mutuality of obligation – It is essential that no mutuality of obligation exists between the parties and there is no obligation from either party to continue the services. The client should not be obliged to offer work to the contractor and the contractor should not be obligated to accept any offer of work from the client.

Other areas to consider are financial risk, provision of equipment, not being part and parcel of the client’s organisation and business-like trading.

As for whether IR35 insurance is needed or not, a lot of recent enquiries I have dealt with have been for uninsured clients, which can prove to be costly. Therefore having some form of insurance in place is prudent and provides peace of mind. There are two levels of cover, Tax Enquiry Insurance and Tax Liability Cover (TLC35). The latter covers both representation costs and liabilities if you are caught by IR35.