What are the benefits of having IR35 insurance?
Since the changes to IR35 legislation were introduced in April, contractors are regularly being recommended to purchase IR35 insurance alongside their other business insurances. We know you might be thinking “why do I need even more insurance?”, particularly when liability for IR35 has shifted, in many cases, to the fee payer. So you may well be thinking that it’s just not something that affects you anymore.
However, there are still lots of benefits to having IR35 insurance – especially if it’s an insurance package that goes above and beyond simple legal and professional fees cover and works to ensure you’re protected from every angle. So, what are those benefits?
Contractors can still be liable for IR35
The IR35 reforms didn’t change things for every contractor engagement and there are still some circumstances where a contractor holds the tax liability. For instance, the IR35 changes only affected medium and large businesses and the contractors that they hire. If your client is classed as a small business then you, the contractor, are still liable for all things pertaining to IR35, from status determination to paying tax. For your client to be considered a small business they must satisfy two or more of the following:
- Has an annual turnover of less than £10.2 million.
- Has a balance sheet of no more than £5.1 million.
- Has an average of 50 employees or less for the financial year.
Another circumstance in which you would be liable for IR35 is if you work for a non-UK client with no links at all to the UK and, therefore, no tax liability here. You can find out more about working outside the UK here.
In both of these cases, you as the contractor would continue to be responsible for declaring your IR35 status and paying the relevant tax and National Insurance contributions. Having IR35 insurance, then, would mean you are covered should you be investigated by HMRC.
Protect your assets
Holding IR35 insurance protects you financially should you find yourself unsuccessful at a tribunal brought by HMRC. You’ll generally be covered for tax, interest and penalties that you could be liable for, meaning you don’t have to foot a huge bill out of your pocket.
Say you were found to owe £100,000… Could you afford to pay it without using all of your savings? Selling your house? Declaring bankruptcy? Holding a suitable IR35 insurance policy helps to prevent these kinds of horror scenarios and cover you for the monies owed.
Legal expenses are covered
If you choose a policy that includes legal expenses cover, it may include cover for tax, PAYE and NIC investigations outside of IR35 legislation, as well as legal and professional fees relating to an IR35 investigation.
Legal expenses cover will provide cover for other aspects, which could include contract disputes, personal injury claims, identity theft, jury service and debt recovery service. These are the sorts of costs that contractors don’t often consider until they’re forced to deal with them (no one plans on being called up for jury service), so having suitable legal expenses insurance in your policy means you can continue not thinking about them unless you have to. And then all you need to do is make a call.
Become a more desirable hire to clients
Some IR35 policies, such as Kingsbridge’s, will flex to cover whoever holds the liability in an engagement. This is ideal under the new rules where sometimes you hold the liability, sometimes it’s your client and sometimes it’s your recruiter.
With many clients becoming more and more risk-averse in this new IR35 world, holding a policy that does this can put you ahead of the pack when it comes to securing contracts because you are mitigating the client’s financial risk and covering them as well as yourself, so everyone’s happy.
Check your IR35 status
Some IR35 insurance policies will give you the opportunity to confirm your IR35 status determination. Kingsbridge’s IR35 Protect Premium, for instance, gives you unlimited use of the Kingsbridge IR35 Status Tool. This means you can check your IR35 status for your various engagements as many times as you need to at no additional cost (usually it would be £50 plus VAT per review), getting an instant, accurate result that is backed up by a manual review in instances of borderline cases.
Why is this good? Well, besides giving you access to an award-winning IR35 status tool and peace of mind that your IR35 status is accurate, IR35 Protect insurance guarantees that HMRC’s case against you will automatically be defended if your outside IR35 status review has been completed by the Kingsbridge IR35 Status Tool, or one of our approved panel members. So, by using the unlimited access to the tool you also have peace of mind that any HMRC case against you regarding IR35 will be defended as well as covered.
Kingsbridge IR35 Protect
Every benefit mentioned in this article is included in Kingsbridge’s IR35 protect insurance:
- Cover for tax interest and penalties for IR35 investigations up to £100,000.
- Legal expenses cover including legal and professional fees relating to an IR35 investigation plus cover for tax, PAYE and NIC investigations.
- Insurance that flexes to cover you, your client or your recruiter as needed.
- Unlimited access to the Kingsbridge IR35 Status Tool (Premium package only).
IR35 is ready-made for the legislative changes introduced in April. To find out more, you can visit our website to decide which package is right for you, or call our friendly team on 01242 808740.