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IR35 Insurance: too good to be true?
It is tempting to think that one can insure away the risk of HMRC disagreeing with an ‘outside IR35’ determination for a Personal Service Company. Such insurance is available, but how useful is it?
IR35 insurance may well be a wise option to cover the legal fees involved in challenging an HMRC decision. But, whatever the policy wording, it is unlikely to cover the costs of the HMRC bill if HMRC wins in court. Cases brought by HMRC are seldom based on an argument about contractual wording. It is not down to your lawyers having thought wording X was ‘outside’ while HMRC thinks wording X is ‘inside’. Rather, HMRC argues that the situation on the ground has evolved away from what was in the contract. If the contract mis-describes the situation, then any insurance proposal, regarding that contract will be deemed to have been based on a false declaration, and so be void.
At a common sense level, with HMRC likely to be looking for up to 15%, or more, of a contract’s value, ie more than £2,000 per month on a £700/day rate, it is not realistic to expect an external insurer, without visibility or control of the situation on the ground, to accept that level of liability without a very significant premium.
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