Should I get my contract reviewed for IR35 compliance?
Since the IR35 reforms came into effect in 2021, most contractors will no longer be responsible for their own IR35…
One of the greatest obstacles if you’re a contractor, recruiter or end client that engages with contractors, is dealing with…
One of the greatest obstacles if you’re a contractor, recruiter or end client that engages with contractors, is dealing with IR35 and the risks that come with it. As a party in the contractor supply chain, you’ve likely heard of IR35 insurance, but is it really worth getting?
In this article, we’ll outline the reasons why each and every party of the contractor supply chain, should consider IR35 insurance to protect themselves from the harsh realities of an HMRC investigation, which can happen to anyone at any time.
In April 2021, IR35 reform known as the off payroll rules came into effect in the private sector, not far behind its public sector counterpart. The off-payroll working rules make sure that a contractor who works no differently to that of an employee, pays the same Income Tax and National Insurance as an employee would.
This new legislation saw the end client engaging the contractor becoming responsible for status determinations, rather than the contractors themselves. It also saw the fee payer (usually the recruiter) taking on tax liability, although contractors are still liable if they engage with a small business or entirely overseas entity making the end client exempt from IR35 obligations.
Since its implementation, businesses – whether contractors, recruiters or end clients – haven’t had the smoothest journey, due to the sheer complexity of IR35. This is made even trickier by HMRC’s use of language and lack of digestible content surrounding the topic. Not to mention the fact that HMRC compliance checks are in full force, meaning no business is safe.
It’s the fee payer that’s liable for ensuring the correct amount of tax paid to HMRC. Also, if a status determination is successfully challenged by HMRC, finding it to be incorrect, any additional tax due will fall to the fee payer.
So, despite the fact that status determinations sit with the end client, recruiters often carry a higher risk when it comes to IR35 tax liabilities. With this in mind, it’s important to consider an IR35 insurance policy that will keep your business covered. Particularly as you never know when an HMRC enquiry might happen and no one wants an unexpected tax bill, which could easily run into you owing thousands of pounds to HMRC.
It’s important to understand that HMRC can open an investigation at any time and they can either look directly at the contractor under IR35 rules, or the end client who is engaging with the contractor under the off payroll working rules.
There have been various high profile IR35 tax investigation cases in the media recently. One such case was Stuart Barnes, the former professional rugby player and now rugby commentator, was successful appealing his IR35 tax position, on the basis of being ‘in business on his own account’. If he had lost his tax tribunal case, it would have resulted in a tax bill of £695k. This is quite a sizable bill to pay and a cost any business would be hard pressed to pay.
But, it’s not just high profile contracts that HMRC looking at, Kingsbridge are in the process of defending a number of end client businesses at the moment, some of the first off-payroll compliance checks.
Luckily those who have taken out our IR35 tax investigation cover, have peace of mind that if HMRC does dispute their IR35 status, they will have cover for defence costs as well as any resulting tax liabilities.
IR35 insurance provides cover for various parties in the contractor supply chain. It protects against the often costly risks associated with IR35 investigations.
There are different IR35 policies depending on whether you are a contractor, the fee payer (usually the recruiter) or end client engaging with contractors. We’ll provide more detail on each of these types of IR35 insurance policy below.
IR35 insurance can play an important part in a business’s defence, no one wants an unexpected tax bill But why is it so vital for businesses to protect themselves from IR35 risks? Let’s take a look at why each party in the contractor supply chain should protect themselves from the potential risks.
If you operate via your own personal service company (PSC), you know the pros and cons of having your own company. While you get to choose your own hours and fees, you’re also faced with a range of challenges that can often lead to stress and doubt.
For many contractors one of these key stresses is your employment status for tax purposes. Unless you are engaging with a small company or a company based entirely overseas, then your employment status is determined by the end-client. This can cause a lot of unnecessary concern, especially if it is not made clear that there is an opportunity for you, as the contractor, to dispute the status determination statement provided by the end client.
To limit the possibility of contract disputes, you should get a contract review prior to starting, this is essential to give yourself peace of mind that you are starting off on the right foot.
Taking out IR35 Insurance for Contractors from Kingsbridge also offers peace of mind. It primarily protects you from the potentially crippling costs that can follow an IR35 enquiry, including cover for defence costs, taxes and interest — on top of any penalties payable to HMRC.
In the majority of cases, the fee payer in the contractor supply chain is usually the recruiter and they will most likely hold the tax liability, thus carrying the most risk when it comes to tax investigations, even though they do not determine the status of the contractor.
Although, as mentioned above, it is worth noting that if you are a contractor that engages with an end client who is based entirely overseas or who is exempt from operating the off-payroll rules, should they satisfy criteria being a small company, then you will still remain responsible for determining your own employment status, including the IR35 tax liability and any associated costs should HMRC come knocking.
There are a whole range of benefits for recruiters when it comes to IR35 insurance. Off-Payroll Protect from Kingsbridge is our market-leading policy that insures fee payers against any outside IR35 status determination. It will not only protect you, but it also covers whichever party in the supply chain that HMRC deems liable following a successful challenge.
Imagine this scenario: you’re getting on with your working day when a letter comes through the post, it’s from HMRC and they are questioning whether or not you have followed the regulations with regards IR35.
While you may feel like your compliance is on track, and you have taken reasonable care when dealing Off Payroll IR35 legislation in relation to your working practices. Tax disputes can happen at any time, with no defined selection criteria, HMRC could request a compliance check, investigate contracts and dispute them, even if you have used their CEST tool for determining the contractors status.
This is where IR35 insurance really helps, providing protection against legal defence costs and the tax liabilities that could arise as a result of an HMRC investigation.
When searching for an IR35 insurance policy make sure it gives you the protection needed. Our Off-Payroll Protect IR35 Insurance provides two primary sections of cover:
• £100,000 of cover per contractor for professional fees to defend an IR35 status enquiry.
• £100,000 of cover per contractor for Tax & National Insurance liability, interest and penalties in the event your contractors are deemed inside IR35.
• Other key benefits include:
• Covers all parties in the contractor supply chain
• 6-year extended reporting period following the initial policy period
• Underwritten by Accredited (First Underwriting), an A-rated insurer
• Ability to insure a third-party status assessment through our Insurance Validation Tool
• No occupation restrictions, allowing you to cover all contractors.
• Contractors are insured monthly giving full flexibility over fluctuating contractor engagements
• Confidence and peace of mind when engaging outside IR35 contractors
Kingsbridge has been offering exceptional IR35 insurance and compliance solutions since 2001. We currently work with over 50,000 contractors; and our IR35 solutions have been implemented by over 4,200 end-hirers and more than 400 recruitment agencies since 2021.
We don’t just provide tax liability cover to protect against an HMRC investigation, our team of IR35 experts are dedicated to helping all parties in the contractor supply chain to overcome challenges, providing advice and support on IR35 legislation that’s second to none.
Kingsbridge’s Head of Tax, Andy Vessey, has successfully defended over 550 contractors against IR35 enquiries and is now handling some of the very first Off-Payroll enquiries.
Interested in understanding more about how you can benefit from IR35 insurance? If you’re a contractor, explore our Contractor IR35 Insurance page for more details. If you’re a recruiter or a company that engages contractors, our Business IR35 Insurance page has all the information you need.