IR35 Insurance - Cost

[Qdos Contractor]

hmm, so a hidden cost.....

£10k/annum salary costs

£10,000 - £105 * 52 = £4,540

£4,540 * 0.11 = £499.40 - employee's NI
£4,540 * 0.128 *.8 = £464.90 - employer's NI, factoring in the 20% CT saving

So another £950 - more than the cost of the insurance.

The level is actually £9.5k.

There are some threads from a while ago relating to this, so I don't really want to go over the same thing again. In our experience of dealing with many thousands of enquiries, we have found that low salary and high dividends increase the chance of enquiry. It's a reasonable preventative measure and benefits the contractor. It's not a problem for our clients, most of whom pay £9.5k+ prior to applying anyway.

[MickeyP]

It's not a problem for our clients, most of whom pay £9.5k+ prior to applying anyway.

Actually it was a problem for me as I was unable to upgrade my Representation insurance to TLC35 because of it.

[Qdos Contractor]

Actually it was a problem for me as I was unable to upgrade my Representation insurance to TLC35 because of it.

I'm sorry that it has casued a problem. We have to provide assurance to our underwriters that we are not taking undue risks, particularly as each policy is worth £100k. As I've said, we have dealt with thousands of cases and low salaries do increase the risk.

[dude69]

The level is actually £9.5k.

There are some threads from a while ago relating to this, so I don't really want to go over the same thing again. In our experience of dealing with many thousands of enquiries, we have found that low salary and high dividends increase the chance of enquiry. It's a reasonable preventative measure and benefits the contractor. It's not a problem for our clients, most of whom pay £9.5k+ prior to applying anyway.

I don't want to argue with you. All I am saying is that you need to reckon the true cost of the insurance against the risk before deciding whether it is a good value.

The question for anybody is, what is their risk of being investigated, and how much would it cost them if (a) they had to defend the case and (b) they lost. The second question is the amount of money they are willing to pay on top of the expected cost to eliminate the risk.

Somethings make more sense than others.

For instance, legal insurance costing under £100 (which you can get while paying a low salary) seems like much better value than tax insurance costing more like £1500 in total.

[Qdos Contractor]

I don't want to argue with you. All I am saying is that you need to reckon the true cost of the insurance against the risk before deciding whether it is a good value.

The question for anybody is, what is their risk of being investigated, and how much would it cost them if (a) they had to defend the case and (b) they lost. The second question is the amount of money they are willing to pay on top of the expected cost to eliminate the risk.

Somethings make more sense than others.

For instance, legal insurance costing under £100 (which you can get while paying a low salary) seems like much better value than tax insurance costing more like £1500 in total.

I do understand what you are saying, although the 'true cost' thoery only applies to people paying a low salary in the first place. I'm afraid it's a condition that has to be in place for such a high level of indemnity.

[dude69]

I do understand what you are saying, although the 'true cost' thoery only applies to people paying a low salary in the first place.

Indeed, but there really is no rational argument for paying anymore than £5,225/year salary, EXCEPT to reduce the expected cost of a HMRC investigation.

There is no other justification.

It would seem bizarre, for instance, to pay a higher salary, incurring considerable NI cost, but not take out insurance, costing <£100,, which is much cheaper than the tax bill.

[malvolio]

Fascinating as all this is, IR35 isn't the real problem any more. Are you similarly covered for S660a and the coming-to-a-tax-office-near-you Family Business Tax (aka Income Shifting )... They are significantly more relevant.

[Qdos Contractor]

Indeed, but there really is no rational argument for paying anymore than £5,225/year salary, EXCEPT to reduce the expected cost of a HMRC investigation.

There is no other justification.

It would seem bizarre, for instance, to pay a higher salary, incurring considerable NI cost, but not take out insurance, costing <£100,, which is much cheaper than the tax bill.

Yes, would reduce the cost slightly, but reduces the initial risk as well.

[Crossroads]

Fascinating as all this is, IR35 isn't the real problem any more. Are you similarly covered for S660a and the coming-to-a-tax-office-near-you Family Business Tax (aka Income Shifting )... They are significantly more relevant.

Not for those without families. And IMHO much clearer in terms of caught or not.

I'm not saying it's right tho...

[malvolio]

Not for those without families. And IMHO much clearer in terms of caught or not.

I'm not saying it's right tho...

OK, but actually it's about as clear as a very muddy thing in Mudville - roughly 400k companies are in scope, as opposed to the 85k that HMG thinks should be, so I'm not that hopeful it will work. Won't stop it becoming law though...