With IR35 reform now in place, it’s never been more important as a contractor to be prepared in regards to IR35
When you work for yourself, there’s a lot to think about. Between meeting deadlines, juggling clients and ensuring you get paid on time, there’s also staying up to date with any governmental changes that could affect your business. With the private sector IR35 reform having been implemented in April 2021 – and the public sector remaining to feel the effects of the legislative overhaul, it’s important that you, as a contractor, are prepared.
Perhaps you know you should get a contract review and look at some business insurances, but you’re not sure exactly what products you need. Maybe you don’t even know where to start. Either way, our guide will help to untangle the IR35 review and insurance options on offer so you can make the best choice for your business.
One of the most common suggestions across IR35 forums and guides to help you stay on the right side of HMRC is to get an IR35 status contract review. Contract reviews are excellent at helping you understand where you fit into IR35 and what, if anything, you need to change to stay clear of the legislation. However, there is a plethora of review options to choose from – which one do you need?
IR35 Contract Review – Essential
An ‘IR35 Status Contract Review – Essential’ covers off the key points in your written contract that relate to IR35. Our IR35 consultancy team will search for clauses most likely to come under fire – for example, whether you have a personal service (substitution) clause, whether your engager has any control over the way you do your work, or whether there are any signs of you being obliged to provide continuous services to your client. We’ll then provide a pass (outside IR35) or fail (inside IR35) opinion and give pointers as to how to improve any problem areas.
This is a great option for those that are confident that they’re not inside IR35 but are required to have a contract review to take out IR35 insurance, or have been asked to have a review by their accountant, recruitment agency or end client.
IR35 Contract Review – Premium
An ‘IR35 Status Contract Review – Premium’ is a deep dive into your written contract. Our IR35 consultancy team will thoroughly read every IR35 related clause and highlight any potential issues, including a comprehensive list of improvements that should be made, including wording change suggestions. You’ll get the same essential pass or fail result from both the Essential and Premium review, but the latter option offers more detailed explanations and covers every element of your contract.
This is the best choice for those that are confused over IR35, are genuinely concerned about their employment status, or want as much detail as possible in any contract feedback.
IR35 Working Practices Review
The IR35 Status Working Practices Review is a different product to the two IR35 Status Contract Reviews we offer, but often accompanies them. Instead of submitting your written contract to us, you instead complete on online questionnaire of around 30 questions (depending on your responses at certain stages) that examines how you go about your day to day work, including how you do business with your clients, and whether you behave as a contractor should in a workplace.
While IR35 Status Contract Reviews are widely encouraged, it’s actually your working practices and client relationship that HMRC will put under the microscope in the event of an IR35 investigation. If you’re worried about your employment status, or have clients that are concerned with where you fall in the off-payroll rules, it’s advisable to double up with an IR35 Status Working Practices Review.
As a genuine business, a contractor needs to protect themselves from the various risks they face – and by protecting against financial risk i.e. a monetary loss, they are showing they are in business on their own account. No matter how small the chance, just one claim from a client could bankrupt a small contractor.
So what business insurances do contractors need?
Professional Indemnity insurance, often referred to as PI, is one of the fundamental insurances for contractors. PI protects you and your business should your client allege that you’ve made an error or omission in your services. This can include inadequate advice given, negligence, or flawed designs. It also covers legal expenses when defending the claim, or any compensation needed to fix the problem.
Almost all contractors will have a contractual requirement to hold PI cover (usually £1 million), and even those without such a requirement are recommended to ensure they take the cover out. The precise level of of PI cover you need will be stated within your contract with the end client.
PI protection is particularly important for professions that handle personal or financial data, or who’s designs or advice could have significant monetary repercussions if they’re not up to industry standard. Accountants, business consultants and IT contractors are all high-risk when it comes to PI.
Public (& Employers) Liability
Public Liability (PL) insurance covers the cost of a claim made by someone – a client or member of the public – who has suffered injury or property damage as a result of work you’ve done. PL covers the ‘physical’ damage caused by a mistake. Whether you’re at fault as the contractor can depend on the amount of time passed and how the client’s maintained the work done, but proving liability can still result in a costly trial.
All contractors should consider having a minimum amount of PL cover (usually £2 million for PL and £10 million for EL), but those working in manual professions especially – like construction and the energy sector – will almost certainly need it. The amount of PL insurance you need will be stated within your contract with the end client.
It’s also worth bearing in mind that while PL isn’t required legally, Employer’s Liability (EL) insurance is – provided that you have two or more people in your company. EL cover pays for compensation costs and legal fees if an employee, or ex-employee, sues for illness or injury caused by their work – and it happens to be offered as an add-on as part of our PL insurance.
Contractor IR35 Investigation Insurance protects you from the potentially devastating effects of an HMRC investigation, something which includes IR35 status enquiries. HMRC look for so-called ‘disguised employees’ who gain and carry out work via their own limited companies and purport to be a contractor, but in reality are just an employee in all but name. This makes limited company contractors prime targets for HMRC.
If you find yourself being investigated under IR35, HMRC will ask you to prove that you’re NOT an employee i.e. outside IR35. This can mean extensive fees to engage the services of professional representation to defend you, the loss of work while the investigation is carried out in attending to matters, stress, and the overall distraction from your day job. This is what our IR35 insurance protects against. As part of the policy, you’ll also be provided with a tax and IR35 expert as defence should you have to go to trial which could prove pivotal for winning your case.