Reply to: IR35 Insurance - Cost

[Qdos Contractor]

I think you're underestimating the situation. It's impossible for us to look at someone's working practices and say that they won't be caught by IR35 - the legislation is a matter of opinion and has never been black and white.

We only hear about cases lost at the Special Commissioners, but what about those who concede or lose before that? We've got countless IR35 enquiries ongoing and, from a personal perspective, the cases I have dealt with have never been easy to win and take a massive amount of time and effort.

Therefore it's frustrating when people are blasé about IR35, saying we are only taking on cases with minimal risk. Many of the enquiries we've fought have been touch-and-go and we certainly didn't envisage that we would never pay out on a TLC35 policy (up to now, of course).

[malvolio]

You can’t compare our TLC35 policy to motor, household or travel insurance where there is a claim and an instant payout or rejection. If one of our insured contractors has an enquiry, we will be representing them for upwards of 2 years before the case could possibly be lost. If there were any blatant fabrications in the initial application we would pick them up very early on in the enquiry (this has never happened). If not, and the case did go against us, the policy would pay out. There would be no way we could “avoid a payout”.

The TLC policy has been running for several years now. The liabilities portion hasn’t been used yet because of our successful defence record, not because we’ve rejected any claims. However, the policy has given many contractors under enquiry the complete peace of mind that they wouldn’t face a hefty bill – plenty will testify to that effect.

There is no way I can give a blanket ‘guarantee’, but it you complete the application accurately the policy will fully cover you. PM me if you want to discuss at length.

All very true, but you can't escape the fact that if the contract is clearly IR35 caught, you (or anyone else) simply won't insure it. Given the win/loss ratios you are managing that is not a bad working assumption, of course, and clearly you aren't going to take on a risk for the fun of it.

However, from the potetnial purchaser's viewpoint, the insurance is against an event that you are saying will almost certainly not happen; so why not simply stay with PEI insurance, ignore the vanishingly small risk of a tax repayment demand as the result of a lost case and save a fairly significant premium? That is the underlying question some might struggle with.

[Qdos Contractor]

Cheshire Cat didn't seem to get a reply and I'm just wondering - it's all very well in theory, paying for an Insurance policy which will cover you for tax & NIC should you lose an IR35 investigation against HMRC, but the first thing any Insurance Company does in the event of a claim - be it motor, household, travel or any type of insurance - is try to find a way of avoiding a payout.

So - how can we be guaranteed that Qdos would indeed stump up if push came to shove?

You can’t compare our TLC35 policy to motor, household or travel insurance where there is a claim and an instant payout or rejection. If one of our insured contractors has an enquiry, we will be representing them for upwards of 2 years before the case could possibly be lost. If there were any blatant fabrications in the initial application we would pick them up very early on in the enquiry (this has never happened). If not, and the case did go against us, the policy would pay out. There would be no way we could “avoid a payout”.

The TLC policy has been running for several years now. The liabilities portion hasn’t been used yet because of our successful defence record, not because we’ve rejected any claims. However, the policy has given many contractors under enquiry the complete peace of mind that they wouldn’t face a hefty bill – plenty will testify to that effect.

There is no way I can give a blanket ‘guarantee’, but it you complete the application accurately the policy will fully cover you. PM me if you want to discuss at length.

[KennyG]

Cheshire Cat didn't seem to get a reply and I'm just wondering - it's all very well in theory, paying for an Insurance policy which will cover you for tax & NIC should you lose an IR35 investigation against HMRC, but the first thing any Insurance Company does in the event of a claim - be it motor, household, travel or any type of insurance - is try to find a way of avoiding a payout.

So - how can we be guaranteed that Qdos would indeed stump up if push came to shove?

[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...

[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...

[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.

[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.

[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.

[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]

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]

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.

[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]

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.

[dude69]

TLC35 also requires that you take a minimum salary of 10k pa.

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.