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IR35 Insurance

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    #11
    Comprehensive update that. Very useful feedback. Cheers.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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      #12
      FWIW I do a lot of work with a particular consultancy that has an "associate" model. They mandate all contractors working their outside IR35 gigs hold the same Kingsbridge insurance. I know the owners of the firm very well and made my views known to them that it really shouldn't be my place to insure the supply chain. The wishy-washy response was that it was a requirement set by the end client(s) as part of agreeing to structure the work as outside IR35.

      My approach was to let my principles slip for once, and factor it into the day rate of course.

      I guess I can see the sales pitch:

      1. Client benefits with lower cost of outside IR35 engagement.
      2. Contractor gets what they want.
      3. Client mitigates risk with insurance policy paid for by the contractor.
      4. Contractor sucks up the insurance cost.
      5. Agency gets a nice little kick back for each policy sold.

      Likewise there is nothing in my contract to pass liability over to me/my Ltd.

      Comment


        #13
        Originally posted by Crossroads View Post
        FWIW I do a lot of work with a particular consultancy that has an "associate" model. They mandate all contractors working their outside IR35 gigs hold the same Kingsbridge insurance. I know the owners of the firm very well and made my views known to them that it really shouldn't be my place to insure the supply chain. The wishy-washy response was that it was a requirement set by the end client(s) as part of agreeing to structure the work as outside IR35.

        My approach was to let my principles slip for once, and factor it into the day rate of course.

        I guess I can see the sales pitch:

        1. Client benefits with lower cost of outside IR35 engagement.
        2. Contractor gets what they want.
        3. Client mitigates risk with insurance policy paid for by the contractor.
        4. Contractor sucks up the insurance cost.
        5. Agency gets a nice little kick back for each policy sold.

        Likewise there is nothing in my contract to pass liability over to me/my Ltd.
        It depends on whether you are making the assessment on the basis of Chapter 8 or Chapter 10. If the former (e.g. your immediate client is a small company as defined in ITEPA) then the insurance is clearly for your company's liability. If it's Chapter 10, then the legislation is very clear on who owns the liability for a wrong decision and it definitely isn't the end contractor. The spin off from that is if the fee payer gets done for a wrong determination, the contractor doesn't (as yet!) seem to have any requirement to repay the taxes that haven't been deducted from their fees. So you may not be directly liable for paying the missing taxes, but you may well become liable for the fee payer trying to recover them from YourCo on the basis that they aren't yours, and so insurance for that eventuality is more logical.

        This is all to be tested of course but thanks to HMRC's usual sloppy wording of their legislation, it is currently far from clear how it al works.
        Blog? What blog...?

        Comment


          #14
          Originally posted by malvolio View Post

          it is currently far from clear how it al works.
          Nope it’s very clear how it works - HMRC have a helpline you can call and get advice on.

          their advice is actually simple, do what you can to recover the money from the contractor and then repay it as deemed payments with the tax deducted because otherwise you need to pay tax on the full amount the contractor received.

          so a £500 a day contract for 200 days is £100,000. recover the money from the contractor and £45,000 goes to HMRC and you return the £55,000 as a deemed payment to the worker.

          fail to recover the money and that £100,000 is deemed to be the deemed payment net of tax and the chain will need to find the £95,000 or so that HMRC believes is owed in tax.

          now the chapter 10 law is a mess because it results in 2 possible outcomes but it should be very clear why 1 particular approach is the one everyone (except the contractor) in the chain prefers.

          and it’s why all the sane large clients operate on the basis of that they will only use umbrella workers - wtf would you take the risk unless you had an exception that pushed the decision into the chapter 8 rules.

          edit to add - and I think if you follow the logic above you can see why kingsbridge are getting the contractor to pay the insurance..
          Last edited by eek; 2 April 2023, 14:37.
          merely at clientco for the entertainment

          Comment


            #15
            Originally posted by eek View Post

            and it’s why all the sane large clients operate on the basis of that they will only use umbrella workers - wtf would you take the risk unless you had an exception that pushed the decision into the chapter 8 rules.

            edit to add - and I think if you follow the logic above you can see why kingsbridge are getting the contractor to pay the insurance..
            I get why sane large clients don't want to engage contractors, but prefer umbrella workers, it makes total sense. I also get why contractors would rather be umbrella workers than subject to the Ch.10 regime.

            I still don't get why the Contractor should buy the insurance (noting that the contractor's only other option may be to walk away).

            Even if the fee for this is deducted from the Agent's payment to the contractor, it's surely better that the Agent buys the insurance and the contractor doesn't get involved. After all, the contractor has no Ch.10 liability once an 'outside' determination is in effect ratified by the first payment made by the client.

            If the contractor buys the insurance then presumably dealings between the supply chain and the insurer need to be handled by the contractor. Seems to me that this lines up a lot of potential admin and involvement in something that's nothing to do with a contractor. Even worse, the contractor doesn't get paid for any of this admin.

            Or perhaps the insurance allows the contractor to walk away and leave the supply chain entities and insurer to deal with each other?
            Last edited by Protagoras; 2 April 2023, 17:26.

            Comment


              #16
              Originally posted by Protagoras View Post
              After all, the contractor has no Ch.10 liability once an 'outside' determination is in effect ratified by the first payment made by the client.
              As eek said, this is not HMRC's view about what should happen (FWIW) and it also isn't the view of some lawyers who think the PSC can be pursued, especially if the contract allows it. An analogy would be the ability of an employer to recover PAYE debts from an employee where they made a mistake in operating PAYE. That said, it's hard to be sure because this is untested. That isn't to say the first payment from the end client isn't important, but there are some (including HMRC) who think debt recovery is a commercial issue for the supply chain, regardless of what the legislation intended.

              Comment


                #17
                And as I hinted, there is a fundamental problem here, that you can't insure against someone else's risk, unless you specifically and contractually agree to do so - and even then the insurers may take a dim view of it.

                On the face of it Eek's description of the intended process has a certain logic to it, but they can't impose it in isolation. HMRC may well have their view of the reality; they've had lots of practice...

                Furthermore, does the insurance pay out for the "recovered " monies, or the legal support to stop it being clawed back?
                Blog? What blog...?

                Comment


                  #18
                  Originally posted by malvolio View Post
                  And as I hinted, there is a fundamental problem here, that you can't insure against someone else's risk, unless you specifically and contractually agree to do so - and even then the insurers may take a dim view of it.

                  On the face of it Eek's description of the intended process has a certain logic to it, but they can't impose it in isolation. HMRC may well have their view of the reality; they've had lots of practice...

                  Furthermore, does the insurance pay out for the "recovered " monies, or the legal support to stop it being clawed back?
                  It's both, but primarily marketed as tax loss insurance, analogous to QDOS TLC35, only intended for the supply chain as a whole, not the PSC alone. Obviously, it's more complicated in these circumstances and I wouldn't rely on this insurance any more (in fact, less) than I would the equivalent QDOS insurance, which is probably worthless (not the legal expenses cover, the tax loss portion). All you can really do is avoid Chapter 10 contracts altogether or, at the very least, ensure that the contractual terms do not allow for any transfer of liability, and even that might not be enough (which is why I avoid them altogether).

                  Comment


                    #19
                    Originally posted by jamesbrown View Post
                    All you can really do is avoid Chapter 10 contracts altogether or, at the very least, ensure that the contractual terms do not allow for any transfer of liability, and even that might not be enough (which is why I avoid them altogether).
                    +1. I also refuse to engage under Ch.10 rules.

                    Comment


                      #20
                      Bit slow here and just checking, but main way your not engaging under ch.10 is either contracting to small business clients (under the £10.2M) or overseas work right?

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