Insurance covering IR35 is a prudent choice for intermediaries and personal service companies concerned that their contracts might be viewed by HMRC to be within IR35. Nevertheless, as with all insurance cover, freelancers should ensure that the IR35 Insurance satisfies their requirements and should ascertain their IR35 status with a qualified accountant that specialises in intermediaries and personal service companies. Find out more information on IR35 and HM Revenue & Customs.
Nearly 1.5 million individuals in Britain work as self employed contractors, or freelancers. For all of these individuals, and insurance covering IR35 is necessary to protect against an HM Revenue and Customs (HMRC) investigation and any possible subsequent legal/ tax liability costs that might result. Annually, HMRC executes approximately 1,000 investigations into personal service companies .
The amount of investigations against the amount of contractors seems like a good ratio and you could be forgiven for thinking that you will easily slip through HMRC’s grasp for IR35 calculator. For those that are caught in hte inland revenues net, the consequent investigation can be intense. It’s likely that you will be looked upon as being guilty until you prove your company’s innocence. When under investigation, a self employed contractor will have pay for professional legal advice and defence and this can easily cost beyond the 10K mark.
Clearly,when the possible negative outweights the positive, the benefits of IR35 insurance are self evident – annual expenditure is small compared with the possible risk and tax liabilities of being found within IR35. Thankfully, basic cover meets the cost of expert defense in a tax tribunal and any subsequent court action, but not the back taxes, penalties and everybody’s least favourite thing – accrued interest.
Those looking to gain total peace of mind should ensure they obtain a more comprehensive policy that covers the contractor for expert representation in the event of a PAYE compliance review. For additional premiums contractors can also take out cover for a range of HMRC investigations, income tax and National Insurance Contribution liabilities, plus interest, penalties and back dated tax years.
Contractors taking out coverage, should be sure to check the small print in the policy document to see what is covered and what is excluded. Equally, they must take steps to understand the level of coverage provided.
It is also essential to keep to the terms of the policy and not carry out any actions that might void the insurance. This is not just prudent from an insurance point of view, but is also likely to ensure the contractor remains outside IR35.
A comprehensive policy can cost between £100 and £600 per year. The cost of the policy reflects the level of cover one will enjoy. Even though the chances of being investigated are seemingly small, such sums are comparatively little when one considers the reassurance and peace of mind a contractor will gain from the knowing that they will have expert assistance, and the money to buy it, in the event that the worst happens.
