Tax deductibility of IR35 insurance, Jury service policies, etc

[7specialgems]

Question relates to all insurances you're likely to have other than PI/PL and also contract reviews.

Are they truly tax deductible?

On the one hand, you wouldn't have them if you weren't a PSC or a freelancer (so maybe yes they're deductible), but on the other, they protect against a personal exposure (so actually maybe they're not).

Just curious to get the opinions of a few independents on this. It's certainly split opinion in my accountant's office.

[TheCyclingProgrammer]

Hmm, interesting one. My main insurances (EL/PL/professional indemnity) go through the business as they are wholly and exclusively for business purposes. My PCG membership (which isn't an insurance policy) goes through the company books (with invoice in company name) as I consider it a business expense without no BIK issues but I do add it back for corporation tax purposes (the reasons why have been discussed on here previously).

I don't have specific IR35/jury service cover, just what comes with my PCG membership. I'm inclined to think that IR35-specific insurance is insurance against a personal tax liability so should therefore be paid for personally or treated as a BIK but that's just my non-professional opinion.

Jury service cover is a bit trickier as its effectively protecting YourCo from loss of revenue in case one of its employees (i.e. you) has to do jury duty. I'd say if the policy was in YourCo's name and it was the beneficiary of the payout then it should definitely be paid for by the company and there should be no BIK issues. The following HMRC link would seem to suggest that insurance to protect revenue due to the loss of a key person should be allowable:

http://www.hmrc.gov.uk/manuals/bimmanual/bim45525.htm

It doesn't mention jury service specifically but it would seem that its in the same vein. The premiums would be tax deductible but any payout would be treated as trading income and subject to CT.

If Jury service cover is in your name and you are the beneficiary then I think you need to pay for it yourself.

[7specialgems]

Thanks TCP.

I'm inclined to agree that the IR35 insurances are protecting an individual rather than the company, the company being a wrapper for the man.

I think similarly with contract reviews. I doubt that these are deductible and I see the point of those who say "yes but if I wasn't in business I wouldn't need one" but the reason you need one is because you are a one man business (I doubt very much that Accidenture, Cr*p Gemini et al all do a contract review for each of their consultants).

Perhaps with such products it is cheaper in the long run to buy them via dividend income? If they're going to attract the CTax *anyway* then not buying them as company expenditure sidesteps Class 1A contributions on a BIK?

[TheCyclingProgrammer]

I don't agree that fees for professional contract reviews would not be allowable. Its just good business sense for YourCo to have its legal agreements reviewed for a number of reasons and I wouldn't think twice about putting the costs of any contract review through MyCo and treating it as tax deductible.

Whether any payout from an IR35 policy would be liable to CT as trading income I'd say depends on the beneficiary of the policy. If you are personally named as the beneficiary then I'd say it wouldn't be treated as taxable income for YourCo, even if it had been paying the premiums. Instead I'd expect it would be treated as your money with the premiums being taxed in the same way as YourCo paying for debts/bills in your name - i.e. treated as additional income subject to tax/NI and Class 1A NIC on the BIK.

On that basis alone I'd not bother putting the premiums through the company as the extra PAYE income is going to reduce the amount of dividends you can take before you become a higher rate tax payer.

[SueEllen]

I think similarly with contract reviews. I doubt that these are deductible and I see the point of those who say "yes but if I wasn't in business I wouldn't need one" but the reason you need one is because you are a one man business (I doubt very much that Accidenture, Cr*p Gemini et al all do a contract review for each of their consultants).

Perhaps with such products it is cheaper in the long run to buy them via dividend income? If they're going to attract the CTax *anyway* then not buying them as company expenditure sidesteps Class 1A contributions on a BIK?

Firstly not all contract reviews are the same. Some contract reviewers look at other clauses e.g. handcuff, intellectual property rather than just the IR35 specific ones.

Secondly even if they do only look at only the IR35 specific ones - how is the business you are a director off suppose to workout what tax they should be paying? You seem to forget even with contracts that fail IR35 the contracts are often between the company and the agency, not the agency and the individual consultant.

[centurian]

It's certainly split opinion in my accountant's office.

Oh, this brings back memories. Had a "debate" with my accountant a number of years ago. They said PI insurance wasn't allowable as a deduction under IR35 (my first contract was inside IR35) - I queried that - and they then asked some tax advisors of their own, who confirmed their opinion.

Undeterred, I found some HMRC guidance on the HMRC website which specifically said that PI insurance was allowable - this was ~6 years ago, so guidance may have changed.

The accountants, still didn't want to admit they were wrong, conceded that I could probably "get away" with it - and said that it was "unlikely the HMRC would charge me a penalty" for underpaid tax.

Given I paid by the hour, it probably cost me more to argue the toss, than I actually saved, but it was good to see the professionals squirm when I presented HMRC's guidance which contradicted their own opinion.

[jamesbrown]

I don't have specific IR35/jury service cover, just what comes with my PCG membership. I'm inclined to think that IR35-specific insurance is insurance against a personal tax liability so should therefore be paid for personally or treated as a BIK but that's just my non-professional opinion.

There has been some discussion about this and differing views w/r to whether it meets the criteria for being wholly and exclusively for the purposes of the trade. My view is that it isn't allowable, even if IR35 is a business liability in the first instance, not a personal liability. Some relevant discussion here:

BIM46452 - Specific deductions: professional fees: fee protection insurance

[Contreras]

I don't have specific IR35/jury service cover, just what comes with my PCG membership. I'm inclined to think that IR35-specific insurance is insurance against a personal tax liability so should therefore be paid for personally or treated as a BIK but that's just my non-professional opinion.

Except that IR35 is a company tax liability.

IMHO, there should no problem with paying any of the mentioned insurances/services through the company. In practice that means I'd happily put them all through the books without asking and rely on my accountant to raise any doubts.

[TheCyclingProgrammer]

Except that IR35 is a company tax liability.

Is it? If you treat income from a contract caught by IR35 without operating deemed payments etc. and just taking dividends instead, who owes what? Surely it's the individual who owes income tax?

Edit: well it would seem that you're correct if this article is correct (and I have no reason to doubt Jessica's professional view on this) that it can be a personal liability but normally would be the employer's liability. Seems very complicated as to why:
https://www.whitefieldtax.co.uk/web/...-a-individual/

That said, as jamesbrown pointed out, I still think you have to consider HMRC's guidance on fee protection insurance. But in light of the above I think I'd probably put it through the company books too.

[malvolio]

PCG membership is not a BIK precisely because without the company you wouldn't need it so the company can pay for it. Ditto any IR35-specific insurance and PI/PLI/ELI since these are protecting the company, not the individual.

Jury service and similar is a different question, and will depend on what's being covered; your lost earnings or the company's lost income.

Best answer for that lot is the new PCG Plus package - the usual tax protection plus Jury Service, Business interruption and agency/client default cover, all at sensible levels, all for £239 plus VAT (which is also recoverable) per year. It works because you're not buying insurance, you're buying membership of an organisation that does stuff for its members free of charge.Total no brainer to my mind.

Review costs and similar are a company expense as well, AFAIC. It is MyCo that holds the contract and needs the assurance, so MyCo can damned well pay for it as a legitimate business expense.