Contractors: here’s what IR35 insurance actually covers

While the kitchen sink isn’t included, IR35 insurance can be reassuringly comprehensive, even if it has the potential to confuse. 

I liked many things about the exclusive series we commissioned on beating IR35, including its honest assessment of how contractors regard IR35 insurance. 

What Elaine said… 

I’m referring, of course, to ECR Consulting Founder Elaine Richardson’s four instalments for Kingsbridge on her IR35 victory over HMRC, writes Ryan Dawson, IR35 Project Manager at Kingsbridge. 

The series included the revelation that, in Elaine’s view, limited company contractors aren’t always sure what IR35 investigation insurance does and does not cover.  

IR35 insurance disclaimer: policies definitely do differ 

The revelation made me think that a refresher on ‘IR35 insurance’ is probably worthwhile.  

And in fairness to any limited company contractor feeling a bit confused about protection from HMRC’s Intermediaries Legislation, IR35 insurance can differ across the market. 

What does IR35 insurance look like in 2025/26? 

Also known as ‘IR35 protection’, IR35 tax investigation insurance will generally come in the form of either a legal defence policy, a tax liability policy, or a combination of the two, depending on your broker and insurance product of choice.  

What is the point of IR35 insurance? 

An IR35 insurance product’s primary aim is to react to, and defend a contractor’s business from, an HMRC enquiry brought under IR35 (aka the off-payroll working rules).  

Where applicable, IR35 ‘cover’ might also cover the liabilities, penalties, and interest owed should HMRC be successful in investigating you under the Intermediaries Legislation (IR35).  

Depending on the small print, an IR35 protection policy might extend to additional aspects of protection. Usually, these aspects are somewhat connected to HMRC enquiries or tax liabilities, such as PAYE, VAT, and National Insurance.  

What else does IR35 insurance cover, potentially? 

In some instances, IR35 insurance can stretch even further, potentially covering contract disputes, debt recovery and even jury service!  

Should all this be news to you, even though you’ve already got IR35 insurance in place, it may be worth scrutinising your policy wording.  

You might find some cover you didn’t know that you had! And that’s because while it doesn’t exactly cover the kitchen sink, IR35 insurance can still be reassuringly comprehensive. 

IR35 insurance covers legal defence costs, and potentially HMRC tax liabilities too 

We’ll now shift to the other end of the product spectrum. 

So let’s forget ‘the bells and whistles’ that IR35 insurance can come with, and recap on the fundamental aim of IR35 protection. 

IR35 insurance’s two main aims are: 

1. To cover legal defence costs, and; 
2. Tax liability coverage 

From talking to contractors, we know that it provides peace of mind to understand how this two-fold protection from IR35 may typically vary, and what fees or price you’ll pay as a result.   

1. Legal defence costs covered  

Generally speaking, with IR35 insurance, legal defence costs are normally fixed at £50,000 or £100,000 per claim.  

This can vary between brokers and insurers, but £50-100k is standard.  

2. Tax liability coverage 

Tax liability policies, or those IR35 insurance products which include them, can provide varying degrees of cover based on product and contractor needs.  

Some brokers offer a fixed ‘tax liability’ amount, while others will allow you to choose the amount yourself from a range of options.  

Be aware, the tax liability element is generally the most expensive part of an IR35 insurance policy. Put another way, the higher the amount of tax liability you require or purchase, the more expensive the IR35 insurance policy is likely to be!  

With IR35 insurance, how much tax liability will I need to be covered for? 

Some limited company contractors might be unsure or confused about how much tax liability cover they need.  

Fortunately, most brokers offer a calculator to let you roughly calculate your tax exposure and buy a product to suit that amount.  

You can, of course (with a bit more time), calculate your precise exposure under IR35 should you wish.  

IR35 insurance: beware terms and conditions 

All insurance policies have terms and conditions that must be adhered to or else you risk invalidating your cover.  

In the main, IR35 insurance policies align with what, ultimately, HMRC expects of you as well.  

Reasonable Care  

And specifically, that is that you’ve taken “Reasonable Care” over your tax affairs – been honest and truthful about the way you’re working and haven’t acted fraudulently or deliberately to conceal anything. 

In most instances, you’re demonstrating Reasonable Care by ensuring you have considered your IR35 status. Helpfully, this assessment is often provided or stipulated by the insurer through contract and status reviews. 

IR35 insuring against HMRC: could you demonstrate Reasonable Care? 

A further word of warning about HMRC. The UK tax authority has the power to investigate anybody, for any reason, at any time. 

So even if you’re abiding by IR35 rules, taking Reasonable Care, and generally doing what HMRC expects, you could still be asked to demonstrate Reasonable Care (RC).  

Most IR35 insurers will therefore want to see some proof of you actively taking RC, just as HMRC would (should it investigate you under IR35). 

When IR35 insurance comes into its own 

Like all insurance policies, IR35 protection’s real value is realised when you make a claim.  

Should the dreaded brown envelope from the taxman land at your front door, the IR35 investigation and claims process should be relatively smooth, as long as you have IR35 insurance in place.  

Again, Elaine’s mini-series springs to mind.  

She volunteered that having IR35 cover in place was one of three things that she felt held her in good stead. It’s also one of the three things she now recommends all Personal Service Companies (PSCs) have in place to keep IR35 at bay. 

‘Best IR35 insurance you can afford’ 

Let’s say that the worst happens to you as a contractor and HMRC investigates you under IR35. 

Let’s also say, though, that you erred on the side of caution and activated the “best IR35 insurance you can afford,” as Elaine put it. 

What next?  

Well, once a claim is submitted, the handler will usually work to establish that the basic requirements of a claim being accepted are present.  

How an IR35 insurance claim works  

The IR35 insurance handler will take each section in turn and gauge if that section of cover is applicable.  

Be patient.  

For IR35 insurers, this first process will involve a lot of information gathering. 

Next, your insurer will provide you with a judgment on ‘Prospects of Success’ (most insurances will have this clause), before finally, your legal defence is appointed. 

Your shield against HMRC and an ‘inside IR35’ tax bill 

And this legal defence against HMRC will normally be the insurer’s preferred choice.  

The IR35 defender will then act as the shield between you and HMRC, handling all communications back and forth while protecting your position at all times.  

Penultimately, a word of warning… 

There’s no room for dishonesty, but lots of room for knowing your IR35 protection policy 

No insurance policy of any type is going to respond when you need it to if you act dishonestly.  

Similarly, make sure you’re fully aware of your obligations to both your IR35 insurance provider/policy and HMRC. 

It’s crucial to not be dishonest while at the same time being aware of your obligations, as otherwise you risk the insurance policy not doing what you want it to do in the future, should you make a claim.  

Best IR35 insurance broker be like… 

We’re thoroughly committed to assisting contractors in the IR35 insurance space, partly evidenced by us offering no less than FIVE distinct products. 

But whoever your IR35 insurer of choice is, always consult with your broker if you’re in any doubt about your obligations or your insurer’s obligations. You’ll know your broker is worth their salt if they very actively give you a rundown of the cover you’ve got and spell out what you need to do to keep your policy worth the paper it’s printed on. 

How Kingsbridge can help  

Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. At Kingsbridge we offer tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.  

We also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.  

To find out more, get a quote or contact us today.