Since the amendments to IR35 legislation was introduced during April of this year, businesses are frequently being advised to buy IR35 insurance along with their other insurances for business. You may be thinking “why should I require additional coverage?”, particularly when the liability for IR35 is shifting often onto the fees payer.
Perhaps you’re thinking that this isn’t something that’s affecting you anymore.
There are numerous benefits of having insurance for IR35 – particularly when it’s an insurance plan which goes over the basic professional and legal fees and helps ensure that you are protected from all angles. What are the advantages?
Contractors may still be held accountable for IR35
The IR35 reforms did not alter the rules for all contractor assignments and there remain situations where contractors are liable for the tax obligation. For example the IR35 modifications only affected large and medium companies and the contractors employ them.
If your client qualifies as a small company, you, as the contractor, are still responsible for everything related to IR35 such as the determination of status to tax. In order for your client to be considered a small-sized business they must meet at least two of these requirements:
Amount of annual turnover not more than £10.2 million.
Balance sheet with not more than £5.1 million.
It has an average of 50 or less employees in the fiscal year.
Another situation that you might be considered to be in the tax bracket for IR35 is when you are employed by clients from outside the UK with no connections whatsoever to the UK and, consequently, there is no tax obligation here. Learn more about working outside of the UK here.
In both instances you, as the contractor will remain responsible for registering the IR35 condition and paying appropriate taxes and National Insurance contributions. If you have IR35 insurance, then this would mean that you’re protected in the event of being investigated by HMRC.
Secure your assets
The insurance you have purchased will protect you financially in the event you discover yourself in the wrong at a tribunal that is a part of HMRC. It will generally cover penalties, interest, and tax which you may be held accountable for, so you don’t need to pay a massive expense out of your budget.
Legal expenses are paid
If you select a policy which includes legal expenses coverage that may cover for tax and PAYE NIC investigations that are not covered by IR35 laws and professional and legal costs related in any IR35 investigation.
Legal expenses insurance will offer coverage for other elements that could be covered, such as legal disputes and personal injury claims, identity theft jury service, debt recovery services. These are costs that contractors do not usually contemplate until they’re required to face them (no person plans to be summoned to jury duty) So having a suitable legal expenses insurance included in your policy will allow you to avoid thinking about the expense unless you are forced to.
Then all you have to do is dial.
Be a more sought-after hire to your clients
Certain IR35 policies are flexible to include whoever has the responsibility in an engagement. This is a good thing in the context of new regulations because some times you are the person who holds the responsibility but sometimes it’s the client and at times you are the one who recruits.
With more and more clients becoming and more cautious in this emerging IR35 world, having an insurance policy that is able to do this will allow you to be ahead of the competition in the field of contract security because you are reducing the risk of financial loss for your client and securing the risk for them and yourself and everyone is satisfied.