IR35 Insurance

[Qdos Contractor]

It is effectively a way of increasing the excess payment. If you pay a salary of £10K, you will have paid the first £2K tax that would otherwise have been claimable under the policy.

That's not why we set the minimum level. We are simply looking to minimise the risk of enquiry for contractors. There is no hidden agenda.

A salary between £9.5k and £15k will increase the standard excess from £250 to £500. £15k is optimum and is considered an acceptable level of salary for industries across the board.

As Darren states, it does not have any direct implications on IR35, but with a policy worth £100k plus we need to satisfy underwriters that we are not taking undue risk.

[xoggoth]

In the Fair35 thing I've got (also QDOS) there is a clause that says there has to be a reasonable chance of success in a defence. Think this is normal with most legal insurances.

[THEPUMA]

That's not why we set the minimum level. We are simply looking to minimise the risk of enquiry for contractors. There is no hidden agenda.

A salary between £9.5k and £15k will increase the standard excess from £250 to £500. £15k is optimum and is considered an acceptable level of salary for industries across the board.

As Darren states, it does not have any direct implications on IR35, but with a policy worth £100k plus we need to satisfy underwriters that we are not taking undue risk.

OK fair enough it was the only rational explanation I could think of. Who has determined that £15K is "an acceptable level of salary"? Is it the underwriters?

It just seems a shame to force people to pay so much extra NI when there is no evidence that I have ever seen to suggest that a lower salary increases your chance of enquiry.

[Qdos Contractor]

OK fair enough it was the only rational explanation I could think of. Who has determined that £15K is "an acceptable level of salary"? Is it the underwriters?

It just seems a shame to force people to pay so much extra NI when there is no evidence that I have ever seen to suggest that a lower salary increases your chance of enquiry.

We, along with underwriters, decided that £15k was an optimum level. Remember that £9.5k is acceptable for insurance.

Qdos have dealt with thousands of enquiries and we have seen plenty of evidence that low salary levels can be the catalyst.

[THEPUMA]

We, along with underwriters, decided that £15k was an optimum level. Remember that £9.5k is acceptable for insurance.

Qdos have dealt with thousands of enquiries and we have seen plenty of evidence that low salary levels can be the catalyst.

I'm surprised but have to defer to your greater experience. Can you be more specific about what evidence you have seen? Have you got any stats?

[Qdos Contractor]

I'm surprised but have to defer to your greater experience. Can you be more specific about what evidence you have seen? Have you got any stats?

We don't keep statistics to that degree. However, we have successfully defended over 1000 IR35 enquiries and a significant number of those involved directors who took low salary payments.

For obvious reasons the Revenue prefer enquiring into contractors who would be subject to the highest tax loss. This means that when, reviewing P35s, they will opt for those with nominal payments rather than a 'reasonable' level. It's a no-brainer for them.

[THEPUMA]

We don't keep statistics to that degree. However, we have successfully defended over 1000 IR35 enquiries and a significant number of those involved directors who took low salary payments.

For obvious reasons the Revenue prefer enquiring into contractors who would be subject to the highest tax loss. This means that when, reviewing P35s, they will opt for those with nominal payments rather than a 'reasonable' level. It's a no-brainer for them.

If a significant number involved directors who took lower salary payments, presumably a significant number involved directors who didn't? I'm not entirely convinced.

Let's assume we accept your point that someone paying a lower salary is more likely to be enquired into (which I don't necessarily but I'll run with it for the purposes of this debate), it therefore follows that it is in your interests to insist on a minimum salary level.

But let's say the chances of enquiry are 1% (you may be able to give a more accurate figure but it is certainly substantially lower than this in my experience) if someone pays themself at the NI threshold. To be conservative, let's assume that the chances of enquiry if your minimum salary is paid are nil.

My understanding is that the average payout on an IR35 lost case is £12K and using the PCG website stats (which include s660 cases) the chances of HMRC being successful are 4/1451.

Therefore the expected cost to you of someone paying the most tax efficient salary is £12K x 1% x 4/1451 = £0.33.

But the additional tax cost to them of taking a £15K salary is approx £2,000 pa.

Surely, therefore, you would be better off increasing their policy price by £0.33?

I'm sure there is a flaw in my logic but I am struggling to identify it. Even if I'm out by a factor of a 1,000, it would still be in the mutual best interests to pay the NI threshold, wouldn't it?

I appreciate that I haven't quantified the intangible benefit of not being investigated, which may be significant. Is there anything else I'm missing?

[Qdos Contractor]

My understanding is that the average payout on an IR35 lost case is £12K and using the PCG website stats (which include s660 cases) the chances of HMRC being successful are 4/1451.

We've saved 1000 contractors a total of £36 million, so that average payout isn't accurate in our opinion.

I'm not really prepared to get into a convoluted argument about this. The fact is that we offer a cover that provides complete peace of mind and our clients are very happy with it. An increased salary reduces the risk of enquiry and is therefore in the best interest of the contractor. The majority of clients who apply for TLC35 already take over £9.5k, so it isn't often a problem.

[Hiram King Of Tyre]

Are we saying here though that taking a low salary may increase the chances of being investigated but not the likelyhood of HMRC being successful? (Althoough it would increase the IMPACT of HMRC being successful)

If you are clearly and catagorically outside IR35, then why fear an investigation?

That is an innocent question by the way, and yes I did recently have my contract and working practices reviewd by Qdos.

[MickeyP]

The majority of clients who apply for TLC35 already take over £9.5k, so it isn't often a problem.

Meaning that it's possible to take out TLC35 on less than £9.5k? Perhaps just more expensive?