The importance of enforcing IR35 insurance
For those who are hopeful of another delay to IR35 reforms, head straight to our earlier blog which will explain why we think IR35 is unlikely to be delayed again. For everyone else, it’s time to get prepared. But what does being prepared mean? Well, as well as choosing the right IR35 status tool to suit your needs, we’re also recommending that all our contractors and their partners have appropriate IR35 insurance cover in place.
Kingsbridge’s IR35 Protect is a comprehensive and market-leading insurance solution that protects the entirety of the contractor supply chain – from end client to contractor, and everyone in between. This blog is a run-down of why we think IR35 insurance will be essential for everyone hiring, paying and recruiting contractors from April 2021 onwards.
What is IR35?
If you’re a regular reader of this blog, you can skip over this bit: you’re already well aware of IR35. But just in case you are new to the game – perhaps you’re one of the many firms who are looking to make the most of the flexibility of a contractor workforce in the current uncertain economic environment – or you’ve somehow managed to miss the news, here’s the key info.
You need to prepare for the introduction of IR35 legislation and understand what your responsibilities are. Put simply, IR35 reforms have been brought in to crack down on what HMRC call “off-payroll working”.
That’s when companies hire contractors through their intermediary or limited companies as a contract of services, but the relationship is actually more like an employee/employer relationship. This is not genuine contract working.
IR35 reforms will make end clients examine their contractual relationship and working practices with each contractor they hire, and ask them to declare the contract “outside IR35” (represents a genuine contractor relationship) or “inside IR35” (where the contract is more like one of employment). This is called a status determination.
If the contract is inside IR35, it becomes subject to the same tax and National Insurance rules as an employee on PAYE. You can find out more about IR35 and how it affects recruiters and end clients on our IR35 Hub.
Why do end clients and recruiters need IR35 insurance?
IR35 places new obligations on those engaging contractors if those contractors are deemed to be working inside IR35. PAYE income tax and National Insurance contributions will then be required to be paid on these engagements, as they would be for an employer/employee relationship.
When the reform comes in, it will be the “fee payer” who is liable for these payments and responsible for making sure they are paid.
Who is the fee payer?
Well, it’s not always the end client. The fee payer is the organisation in the supply chain who directly pays the contractor’s limited company or intermediary. So, sometimes, this might be the end client, but often it will be a recruiter or agency. As well as these payments, the fee payer will also be responsible for any money owed if HMRC try to challenge an outside status determination.
The cost of the unpaid tax will be added to by legal defence fees, interest on the amount outstanding and potentially any fines or penalties imposed by HMRC. As you can imagine, these costs have the potential to mount up quite considerably, especially if you are a client or agency working with many contractors.
That’s why we at Kingsbridge have developed a specialist IR35 insurance solution that flexes to protect contractors, fee payers and end clients – whoever is deemed to have liability should the worst happen and you end up in an IR35 investigation.
Can I bring all my contractors inside IR35 to remove the risk?
Sometimes, the gut reaction of anxious end clients when they hear about IR35 is to decide that they will just declare all their contractors to be inside IR35, or put a blanket ban on hiring through personal services companies. This over-cautious approach might seem to protect you from IR35 investigations and remove any worries about penalties.
However, we’ve seen from the public sector, where IR35 reform has already happened, that blanket determinations come with their own set of risks. Firms that go down this route risk losing their top talent and it will almost certainly make roles harder to fill.
HMRC has stressed that end clients must take “reasonable care” in all status determination statements, and blanket bans are not reasonable as they don’t examine the specifics of each contract or arrangement. Contractors who are deemed to be inside IR35 may also start to ask questions about their right to other benefits that are extended to employees – such as holiday pay and pension contributions.
So if you want to keep your best contracting talent, you need to take the time to examine each contract on a case-by-case basis.
Kingsbridge IR35 insurance
That’s where IR35 insurance comes in. Kingsbridge’s IR35 Protect insurance is unique because it offers everyone in the contractor supply chain peace of mind, covering whichever party HMRC decides to pursue as liable in an IR35 tribunal.
Whether it is the contractor, end client or agency that is held at fault, IR35 Protect will cover taxes, interest and penalties for IR35 investigations.
We understand IR35 can be scary for recruiters and end clients. But it needn’t be. With IR35 insurance that will shift to cover the liable party, and a market-leading hybrid IR35 determination status tool, Kingsbridge has the perfect package of IR35 support to get you prepared for April, without losing your best contract workers.
You can keep attracting top contracting talent but also be secure in the knowledge that you are compliant and protected. For more information about what support Kingsbridge’s IR35 solutions can offer to recruiters and end clients, get in touch with us today on 01242 808742 or email us at firstname.lastname@example.org.