What is IR35 Insurance and is it Worth It?

IR35

Officially named the off-payroll working rules, IR35 assesses whether a contractor is genuinely self-employed or, in essence, a 'disguised employee'.

Introduced in 2000, this UK-specific rule was created to close the tax loophole where contractors could work like regular employees but receive pay through an intermediary, such as a Personal Service Company (PSC), thereby potentially paying less tax.

The UK government crafted IR35 to ensure that workers, who would have been regular employees if they were directly providing their services to the client, would pay comparable Income Tax and National Insurance contributions as employees.

Who does IR35 affect?

You might fall under the off-payroll working rules if:

  • You're a worker providing services to a client through an intermediary.
  • You're a client receiving services from a worker via an intermediary.
  • You're an agency offering workers' services through an intermediary.

Usually, the intermediary is the worker’s own Personal Services Company (PSC), through which the client contracts are made.

What is IR35 Insurance?

IR35 insurance acts as a protective shield against the potential financial and emotional strain an IR35 enquiry can generate. It's primarily designed to safeguard limited company contractors from substantial costs that can arise from an IR35 investigation, which could encompass defence costs, taxes, penalties, and interest payable to HMRC.

Some key features of IR35 insurance include:

  • Cover for taxes, interest, and penalties arising from IR35 investigations
  • Coverage for tax, PAYE, NIC investigations, and more
  • Support from tax experts, including former tax inspectors, during IR35 enquiries
  • In certain covers, payment of your IR35 liabilities, penalties, and interest

Is IR35 Insurance Worth It?

Dealing with IR35 and its associated risks can be a significant hurdle for contractors, recruiters or end clients engaged with contractors. As the HMRC compliance checks intensify, it's crucial to acknowledge that no business is entirely safe from the gaze of tax authorities.

In recent years, even high-profile individuals have faced significant tax bills due to IR35 disputes. It's not just about the elite; several businesses, from contractors to end clients, find themselves under the scrutiny of HMRC for compliance.

Here's why IR35 insurance might be a wise investment:

  • IR35 enquiries can be complex, so the right insurance not only provides financial security but also grants you access to expert representation to help navigate through the intricate process.
  • Tax and IR35 liabilities can be expensive, so IR35 insurance means you're financially secured against unexpected costs and any resulting tax liabilities.
  • Knowing you are protected offers peace of mind, especially when HMRC compliance checks are ramping up.
  • IR35 insurance can cover retrospective tax years. HMRC can probe into accounts from up to 4 to 6 years back, depending on the circumstances.

IR35 is an intricate subject and its implications can be substantial. As the dynamics of contracting and freelance work evolve, and as tax laws become more complex, having IR35 insurance in place might be less of a luxury and more of a necessity.

Whether you're a contractor, a recruiter or an end client, it's prudent to evaluate the potential risks and decide if IR35 insurance is the right fit for your unique circumstances.

Written by

Luke Glassford

Marketing Director

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