• Home
  • Why should I bother with Insurance

Tag Archive

Tag Archives for " Why should I bother with Insurance "

What Does IR35 Mean?

Intro: So, What Does IR35 Mean to Me?

Before April 2000, as a self-employed worker, you could receive direct payments, and you were allowed to use your company revenue as any small company would do. 

In addition, company profits were not subjected to National Insurance payments; hence, profits could be distributed as dividends.

Moreover, you could set up a family business by splitting ownership of your company with family members and you would be able to save tax in all these cases. Due to the introduction of IR35, all these privileges were aborted.


Why Was IR35 Introduced?

IR35 was legislation introduced by HMRC (Her-Majesty’s Revenue & Customs) with the ultimate goal of stamping out any form of tax evasion, which was considered as fraud or abuse of the tax system. It was designed to tax the workers referred to as "disguised employees". Therefore, under IR35, they were considered as being employed. For instance, if you were receiving payments via an intermediary and you are being paid directly by your client, you would be considered as an employee.

IR35 was established to prevent workers from evading tax by setting up limited companies through which they would work effectively. Hence, to correct this anomaly, HM Revenue and Customs was set up to scrutinize any contractual arrangement between the worker’s company and the client’s so as to ensure that normal employment rules are applied.

This was so that every payment made to the worker’s company would be appropriately taxed. In addition, setting up family companies was also countered by the IR35 legislation. Consequently, company profits were subjected to National Insurance payments, hence, profits could not be distributed as dividends.

What Does It Mean To Be Outside IR35?

If you are running your own business and you heard about IR35, I know you would like to know if the IR35 legislation applies to you. The IR35 legislation applies to any worker, who supplies services through a registered private limited company or in partnership, receives payments directly from the client and pays himself dividends. Therefore, if you fall into this category of workers, IR35 applies to you so you are inside IR35. Otherwise, you are outside IR35.

Being inside IR35, you would be paying taxes as an employed worker. If you are outside IR35, you are not liable to paying tax as an employed worker pays it. Therefore, you are free to choose your payment method, either in form of salary or as dividends. Else, you may choose to be paying yourself a combination of salary and dividends.

Perhaps, you are outside IR35 if you registered your business on your own person but not the company account. However, this question may be difficult to answer explicitly. Therefore, try to consult HMRC guidance(https://www.gov.uk/guidance/check-employment-status-for-tax) to determine whether you are outside or inside IR35.

What Is Mutuality Of Obligation In IR35?

While addressing Employment Status disputes, the term Mutuality of Obligation is a common phrase that is always considered. If it is established that there is Mutuality of Obligation between an employee and the employer, the employer is under obligation to provide work for the employee.

On the other hand, the employee is also obliged to accept the work. Therefore, the employee is entitled, under obligation, to be expecting and accepting work from the employer until the contract is made redundant or they both agree to end the contract.

Under this condition, IR35 is being challenged and failing because the IR35 legislation can only be effective if there is Mutuality of Obligation between the contractor and the client, i.e. if a contract of service exists, the contractor is considered employed. If contract of service agreement cannot be established, the contractor is considered to be self-employed; and hence, outside IR35.

Therefore, if there is no Mutuality of Obligation between you and your client, you are outside IR35. Establishing this status is so complex as a result of this complexity, you are advised to seek professional legal advice to review your contract reviewed for IRS before entering into any contractual agreement.

What Is Substitution In IR35 And What Does It Mean?

The right of substitution is a major factor used to establish IR35 employment status. The right of Substitution is a legal term which gives a contractor the ability to send someone with the same skill or service experience to complete a contract. For instance, once you are providing a service and you are not employed, you can send another contractor with the same experience, who is able to provide the same service, to take your place.

Once you include the clause, “Right of Substitution”, in your contractual agreements, you may be helping your chances of remaining outside of IR35. Conversely, if the clause is not in your contractual agreement, there is a strong chance you are inside it.

However, this may not be valid in some contract cases. However, for this clause to be considered valid, the following key factors must be present in the contract:

  • The client agrees to it.
  • The contractor must be ready to pay for the substitute.
  • It must be an unrestricted right.

What Is Control in IR35 And What Does It Mean?

According to HMRC, as a contractor, you are inside IR35 if you are deemed to be subject to control if your client is instructing you on what work you should do and how you should perform the task. In addition, you are under IR35 Control, if they also have the power to transfer you from one job position to a different job.

However, this rule is ambiguous. For instance, as a building contractor, a client gives you a building plan design which you cannot do but follow to the letter or a client set up a rendezvous for the contract agreement, and you must be present at the location and at the given time. Therefore, are you under control?

However, if you will be found by the HMRC to be under control you will have to be under the supervision, direction and control of your clients, then you are inside IR35. For further clarification on the term “control”, you will have to consult HMRC IR35 Guidance.

Once you understand all of the above-stated IR35 rules, conditions and terms, you will be able to figure out whether you are under IR35 or outside IR35, and you will know what to do if you are under IR35 so as to avoid facing any legal sanction.

In addition, as a contractor, you will know how to approach your lawyer for professional legal advices while you are setting up a contract agreement with a client. Nevertheless, we are here to help you out.

Another important rule to consider, is the 24 month rule...

What Is The Contractor 24 Month Rule That Affects Subsistence?



Contractor 24 month rule subsistence


As a contractor, while you are setting up a contractual agreement, there are some contract rules you need to be conversant with and understand before you seal the deal. One of the most important aspects of the contract rules you need to clarify is the Contractor 24 Month Rule.

For instance, if you are incurring travel expenses in moving from your place to your client’s site, you need to know what the 24 Month Rule means, if it applies to you and if you can legitimately claim any travel cost.I hope you have some questions. Here, we have covered the ground for you.

Does this affect me if I leave and come back?

If you are travelling to your workplace and coming back, for you to know if the rule affects you or not, you have to understand the following:

01. The Meaning of the 24-Months Rule

This rule determines whether a workplace will be considered as a permanent or temporary workplace. So if you are working for your client in a temporary workplace, this rule applies to you.

According to HMRC’s EIM32075 a temporary workplace is defined as a workplace that a contractor visits for a limited period of time to perform a task or any other temporary purposes.

However, if the employee visits the place for a continuous task that lasts for, at least more than 24 months, the workplace will be considered a permanent workplace. Hence, in this case, the Contractor 24-month Rule is not applicable; see Section 339(3)ITEPA 2003 of HMRC’s Rule.

02. Workplace Transition Rule

In addition, if you are working continuous and there is a change of workplace in the course of the contract but it has no substantial effect on your journey to work; such a workplace will be taken as the same workplace. 

For instance, if a client changes the workplace of a contractor from Edinburgh to London, there will be a deduction in the cost of travelling from home to the new workplace. Conversely, if the workplacesare is treated as one, no deduction will be done (see EIM32280 and EIM32089).

However, in most cases, it is difficult to establish a change of workplace but the basic principle is that a change in a workplace is only recognised if the change has a very minimal effect:

  1. On the journey of the contractor has to make to get to the new workplace,
  2. more importantly, on the cost of that journey.

What happens after 24 months?

If your client’s workplace is a temporary workplace as defined by the Contractor 24-month Rule, you are covered by the rule to legitimately claim your incurred travel expenses.

Otherwise, you have nothing to claim. For instance, if you are living in London and you are working for a client at a workplace in London, and it takes you 25 months to complete the task while moving from your home to the workplace there, you cannot claim any expenses incurred on transport because the site will be treated as your permanent workplace having worked there for more than 24 months.

However, if you worked at the place for less than 24 months, you are eligible to be paid for transport.

Does this also affect accommodation?

Yes, the same rule that covers the travel expenses also covers accommodation cost. 

According to the HMRC’s Contractor 24-month Rule, since you are eligible to claim transport expenses, you may be able to claim accommodation expenses, once your workplace is treated as a temporary workplace. 

Conversely, if your workplace is treated as a permanent workplace, you may not be able to claim any expenses for accommodation. Like in the example above, you may be eligible to be paid accommodation expenses by your employer for travelling to Manchester to work.

As a matter of fact, accommodation claims are not clearly stated in the HMRC Contractor 24-Month Rule, this claim is only being placed on the logic that there will surely be a change in the cost of accommodation due to the temporary change in the workplace. Therefore, a contractor may not be able to win this case if he takes to court.

What is the 40% percent rule?

This HMRC’s rule decides whether a contract will be treated as a continuous work or not. According to this rule, the period of work will be treated as a period of continuous work if you performed your duties to a significant extent. The term “significant extent”is determined by the percentage of time you spent as contractor at a workplace.

If the time you spent at the place amounts to 40% or more of your working time (Section 339(3) I.T.E.P.A 2003), your contract at the workplace is treated as continuous work, hence you cannot legitimately claim any incurred travel expenses.

For instance, you live in London and work for a client at a workplace in London, but at a point, your client begins to send you to work in Manchester for 1 and half days in a week, and this continues for a period 25 months.

Since the time you have spent at the site in Manchester is less than 40% of your working time, the workplace is treated as a temporary workplace.

Therefore, you are eligible to claim your full travel cost from your client but not for the rest of the week you spent working in London because travelling between your home and your workplace in London will be considered as ordinary commuting (see EIM32086).

Can I claim Lunch as a contractor?

Just like the accommodation claim, contractors are also debating that change in the workplace, though temporary, might have a significant effect on the lunch expenses and that they incur more expenses on lunch than working in their permanent workplace.

This claim is also not included in the HMRC’s Contractor 24-Month Rule. Hence, a contractor may not be able to proceed with this case in the court as it could be treated as a void claim.

As a contractor, these are some of the rules you need to understand and put into consideration before you seal a contract with a client so that you may be able to avoid any future misunderstandings. Nevertheless, if you are still incurring travel expenses, you are sure that you are working in a temporary workplace and not working continuously according to the Contractor 24-month Rule, you can legitimately claim your incurred expenses from your client.

Another important thing to consider, to protect yourself is insurance, lets discuss this further in the next section....

What insurance do i need for IT contracting so I can Sleep at night?

what insurance do i need for contracting

As much of an IT expert as you may be, there are always things that are beyond your control and might go awry. Contracts may go wrong for a variety of reasons and you, as a professional, have to be thoroughly prepared in case that happens.

That’s where IT contracting insurances comes into play: with a tiny investment,
you can protect yourself, your business and even your reputation –the core of
an independent contractor-.

And being as important as it is, I’ve found that insurance is sadly one of the most overlooked aspects of our career for several reasons: simply not knowing how insurances works, how expensive are they, if they are legally required, or even believing that insurance implies that you can do a subpar job without nothing really happening.

I’ve thought that myself! But there’s a great peace of mind you have when you can rest assured that nothing bad will happen to you if something fails on the other end of the contract or if the unexpected appears, which on this era of hacking and information leaks is always a possibility. In this article, I’ll run you through the basics of IT insurance and you’ll learn how many types and options are out there on the market, and you’ll certainly find one that suits your needs.

Questions and answers

1. Why should I bother with insurance?


The real question is “why shouldn’t you?”. Far from being a bother or a burden,
insurance companies can cover you for everything you think of: from
unintentional contract breaches, confidence breaches, infringement of
intellectual property rights, defamation from unsatisfied clients or even past
unknown mistakes.

Given our field of work, we are not failsafe –no one truly is at anything, we may work with technology but we’re humans after all– and the cost of giving bad advice or applying not-quite-accurate techniques is way too high for an independent worker.

And as you well know, there are pros and cons of working independently: while you are your own boss and you are ready to face the uncertainty between contracts, all possible mistakes that goes from technical to human ones, or even when clients have only you to blame and not an abstract company you work for should concern you.

Insurance companies provides you legal professional representation, indemnity insurances and even public liability insurance, in case something bad happens and you need them the most.

Trust me: as the saying goes, no one should leave home –or sign a contract– without it.

2. Is insurance needed by law?


While technically not mandatory by law if you work on your own, it quickly becomes obvious that you should put some serious thought into it. If you happen to work alone, you may have faced on the verge of signing a contract insurance is not required by law but is a contractual obligation. So why not think ahead and go for it?

I should say that it doesn’t only feel safe, but it also looks good: most agencies nowadays consider insurance as a quality measure and is slowly gaining the status of best practice.

Ranging from 1 to 10 million pounds of cover, this type of policies are not something to be overlooked. Besides, if you employ people, even if you work from home, there’s a chance you may actually be legally forced to do so. It should be noted that Employer’s Liability Act from 1969 states that there are a few exemptions: if you are the sole employee of a company and own more than half of the shares, and if you run a family business and all your employees are close relatives.

3. What is IR35 insurance?


Let’s start from the beginning: IR35, as discussed earlier in this article, is a specific set of rulings that affects all contractors that HRMC doesn’t qualify as self employed. It should really matter to you, since it can truly cripple your future: it states that you’ll face increased taxes and National Insurance liabilities in an effort to stop contractors from working as disguised employees. 

The truth is HRMC is unclear, to say the least, as to which contractors could fall under IR35 hammer. With this level of ambiguity, IR35 insurances are special and handy policies that will assure you that you won’t be facing a potential investigation all alone. 

HRMC can be a hard enquirer, so insurance companies thought of two different
insurance policies you should absolutely check. The first one is called defence only, which will cover basic tax enquiries and legal management in case that dreaded letter arrives at your door steps: legal experts will handle that matter for you.

The other one is named comprehensive and it doesn’t only cover
legal fees, but also any liability in case HRMC believes you should be held up
to IR35 ruling.​

Since those demands can be in the order of the tens of thousand pounds, in my
opinion it’s better to be safe than sorry, and can also be an indicator of you
actually working on your own business, which a lot of your potential clients
might consider a good sign.


4. What level of cover is really needed?

The answer to this question depends on your contract and the risk assessment. However, working on the IT field and handling sensitive information, I recommend at the very least Professional Indemnity Insurance, Public Liability and some sort of IR35 insurance (defence only or comprehensive).

The first one will protect you if you give advice that results in a financial loss to your client and the second one will cover you in case someone is injured or their property gets damaged as a result of your business. Besides, if you plan to run a company, even the smallest one will require Employers Liability Insurance as a legal obligation.

And why shouldn’t you think about it? If you are working independent you want to growing as much as possible, and being safe and prepared is the best way to do so.

5. What different types of Contractor Insurances are there?

Besides the ones we’ve already discussed, there’s a great variety of insurances to keep you safe from harm. In my opinion, being IT contractors, an IT equipment and laptop insurance should be mandatory: it covers you in case your trusty laptop breaks down and you have to replace it, or even if it gets lost or stolen.

Another interesting choice are Business Interruption insurance covers, that helps you in case you have to stop doing business for unforeseen reasons, such as damages to your equipment or buildings, protecting you from financial losses.

You should also consider Cyber and data risks insurance that protects you in case hackers breach into your system and leaks sensitive information, providing you legal representation and much needed reputation protection. And being an independent contractor, an Income Protection Cover is important to cover you in case you have to take some time off in case of illness or an accident.


Final Words on Contractor Insurance

The way I see it, insurances are an independent contractor’s much needed safety net: you don’t want to fall, but what happens if you do? After all those well-known scandals concerning information leaks and security breaches, IT field of work is in the eye of the public storm, and to make it worst, small companies and independent workers are more likely to be targeted by malicious hackers.

I find extremely useful to have an insurance policy in case unforeseen things go
wrong, and I believe no IT contractor should sign a contract without them. I
hope this article was useful to you and guide you towards making the safest
decision to keep your business running smoothly. What do you think about it?
Let me know in the comments if you liked it and feel free to share it with all
your colleagues.

Skip to toolbar