What is covered under IR35 insurance? Depending on the policy, IR35 insurance will cover the costs of hiring an expert to defend your case in an investigation, as well as the tax liabilities, fines, and interest that may arise if you are found to be working outside of IR35 as a consequence.
Can you insure against IR35?
Contractors can take steps to limit the potential consequences of the private sector’s IR35 legislation, but can they insure themselves against IR35?
Yes, you can protect yourself against the cost of an HMRC investigation as well as the potential tax loss if HMRC successfully argues that your engagement falls under IR35, and if you insure with Caunce O’Hara, you can also ensure that you are protected against a variety of other potential liabilities.
Contractors should make sure they are properly insured at all times. If you’re a freelancer, you’ll almost certainly have both professional indemnity and public liability insurance, as both policies are frequently mandated in contracts before work is awarded.
We also provide a selection of IR35-specific insurance products at Caunce O’Hara, including:
Legal Expenses Insurance
In the event of an IR35 inquiry against you, Caunce O’Hara’s Legal Expenses Insurance covers you for legal representation costs up to £100,000 in any one claim.
There are two levels to the policy. Tier 1 refers to the policy’s core coverage, whereas Tier 2 refers to the optional coverage you can purchase.
IR35 Contract Review
When purchased with the Legal Expenses Insurance policy, Contract Reviews are only £60.00 per contract. The contract review will look at both the precise contract that the contractor signed and the contract’s operating procedures. Our partners have approved the processes of an IR35 Contract Reviewer who will conduct the review. The contract/engagement must pass the evaluation as being outside of IR35 and not subject to the IR35 Intermediaries Legislation.
Tax Losses Insurance
This policy will cover the net tax loss that happens when HMRC successfully argue that an Insured’s Qualifying Contract falls within the scope of IR35 based on the result of the IR35 Contract Review determining the contractor to be working outside IR35. Before the Tax Losses Insurance policy may be purchased, the contract review must “pass” the contract/engagement as being outside of IR35.
Professional Expenses Insurance
PEI is a type of insurance that must be purchased in conjunction with Tax Losses Insurance and ensures that an HMRC IR35 investigation can be competently fought by extending the notification time.
The notification period is the period of insurance during which the insured person is permitted to file a claim, including any extensions granted by the Professional Expenses Insurance and the renewal of the Professional Expenses Insurance, both of which are purchased with the Tax Losses policy.
The insured person must continue to renew their PEI even if they are not working on any contracts; else, the Tax Losses Insurance policy would be invalidated.
What is IR35 in layman’s terms?
In layman’s terms, here’s how IR35 works. IR35 is a tax law in the United Kingdom. The IR35 regulation aims to identify ‘deemed employees’ and ensure that they are taxed legally. However, due to the subjective character of the legislation, IR35 can have an influence on people who are functioning legitimately through a limited company structure.
Who does IR35 apply?
If you operate a limited company and provide services, you’ll almost certainly need to think about IR35. It technically applies to anyone who works through a ‘intermediary,’ such as a limited corporation (also known as a personal service company, or PSC) or a partnership.
If you’re a solo trader, you won’t have to worry about IR35. That’s because you and your company are one and the same there’s no legal distinction between you and your company.
Some people believe that IR35 mainly affects IT contractors who work for large banks, however it has a far larger scope. If you’re utilizing a limited corporation, you’ll need to think about IR35 status for all of the following:
This isn’t an entire list; rather, it exemplifies the breadth of IR35’s impact.
Who is exempt from IR35?
End-clients can take use of an IR35 small business exemption: the Companies Act 2006 defines a “small business” as any company that meets two or more of the following criteria: The company’s annual revenue is no more than £10.2 million. The total amount on the balance sheet is no more than £5.1 million. There should be no more than 50 people working for you.
Does IR35 affect self-employed?
IR35 does not apply to single traders because the regulation only applies to incorporated businesses. However, everyone who delivers a service to a client, even sole traders, is affected by the laws concerning designation of employment status, which are closely linked to IR35.
Under the new laws, the company receiving your services is responsible for classifying your self-employed status as a sole trader, and the firm might be held liable if an HMRC investigation uncovered evidence that your employment status was erroneously marked.
Employment status, like whether a worker is inside or outside IR35, is determined by the kind of the work you do and whether you have enough control over your own work to be called self-employed. Sole traders operate in a way that is highly unlikely to fall within IR35.
Is IR35 self-employed?
If you operate for your own limited firm, IR35 will apply to you as a contractor. You don’t have to worry about IR35 if you operate through an umbrella company (a limited company that employs contractors and functions as a third-party supplier between the contractor and the customer), because you’re already paid through the PAYE system and are employed by the umbrella firm.
IR35 does not apply to sole merchants, although there are standards in place to determine their employment status. This means that if the contractor is self-employed but is discovered to be functioning as an employee, the final client will be responsible for any additional taxes owed.
While the contractor has no responsibility for their job status, they may face a wage reduction because they will be placed on the company’s payroll.
If you’re a contractor who works through a limited company, you need to know how the law works and how to follow best practices. This means that you must meet HMRC’s definition of self-employment by ensuring that your work is project-based, that you are not managed by anyone on the client side, that you haven’t offered exclusivity to any clients, and that you have contracts tied to the completion of services rather than a continuous relationship.
It is feasible to continue working through a limited company if your contract is considered to be outside of IR35. This contract will require your client to deduct income tax and NIC.
Contractor take-home pay outside IR35 is significantly higher than contractor take-home pay inside IR35, because contractors outside the legislation can benefit from lower NIC by taking the majority of their income in dividends (currently, you can earn up to £2,000 in dividends before paying any income tax on them). Within IR35, your earnings are taxed at the same rate as a regular employee’s. There are IR35 calculator tools available to help you figure out how the legislation will affect your bottom line.
How do I know if I am IR35?
The IR35 Act applies to contract workers who work for a third party as a limited company, providing specialist services to the client for whom they are now working. HMRC will examine each individual’s contract as well as their work environment to determine whether they are in or out of IR35. HMRC will consider a contractor to be inside IR35 if they are treated as a full-time employee or receive the same perks as a full-time employee. These contractors are thought to be ‘disguised employees’ who are attempting to avoid paying taxes.
HMRC is investigating these individuals to see if they are taking advantage of the fact that they work for a limited company to avoid paying more tax and national insurance. If it is discovered that such individuals have been evading taxes, they will be required to pay the money owed to HMRC. HMRC can now demand back any money that the employer hasn’t paid in terms of national insurance under the new guidelines.
Does IR35 apply to SME?
The new tax laws for off-payroll labor in the private sector went into effect on April 6, 2021, and each company that hires contractors should review their obligations. The new off-payroll requirements (often known as the IR35 laws) will, however, not apply to all small enterprises.