Reply to: Legality of tax insurance

[BillHicksRIP]

We actually like dealing with IR35 enquiries.

Love it!

[Alan @ BroomeAffinity]

I should say, as I kind of panned the TLC product, in the interest of balance, the TaxWise product is exceptional. So far I have only had to make a couple of small claims and all were paid without any problem and the panel of experts you can call on really are very good.

[psychocandy]

Some good insight from QDOS here on their policy. I havent taken it out yet but I think I will do soon,

[Qdos Contractor]

Out of the 1,300+ cases we've dealt with we've only lost about 5 and none of them had the full TLC35 insurance. This has only been down to the skill and experience of our consultants; the cases we have won certainly haven't been easy (as numerous clients will testify).

When we designed the product we certainly didn't expect to maintain a claim-free record on the liability part of the insurance and, assuming HMRC plough resources back into IR35 once the review is complete, I doubt the record will stay intact. This is something both Qdos and our underwriters appreciate.

For the avoidance of doubt, we have never rejected a TLC claim or pulled out of covering a case. We actually like dealing with IR35 enquiries.

[centurian]

Can you give us a real world example of a case (anonymised of course) of where you have paid out? Or has this never happened?

Only QDOS can answer this one, but I doubt they have ever had to pay out. Only a handful of cases have gone all-the-way, and they were probably not TLC35 policy holders.

Thats why the insurance is relatively cheap. The chances of a claim are low - and they don't offer cover to the really high risk ones. If they lose a case, I would fully expect them to cough up.


Of course if they start losing a succession of cases - and end up having multiple 6-figure payouts, expect their underwriters to demand significantly higher renewal premiums, or pull the plug completely on the product - which leaves people exposed for 5 years as the cover is only for investigations initiated in the 1 year you have the policy, not the following 5 years.

[MikeToml]

Very helpful discussion

Cheers guys, especially Lisa and Qdos.

I think my mate may not have realised this wasn't a criminal matter, or taken account of the conditions Qdos Consulting mentioned. As I said, he is pretty knowledgeable about insurance generally but this area is not one he has experience of.

I still don't look forward to that inevitable envelope landing on my doorstep but I am somewhat reassured.

Am sure it's been said many times many ways but what I despise most about IR35 is the greyness of it and the atmosphere of fear, uncertainty and doubt that goes with it.

[Wanderer]

The TLC35 insurance was constructed by ex-HMRC inspectors and was reviewed and approved by insurers prior to being released to the market a number of years ago.

Can you give us a real world example of a case (anonymised of course) of where you have paid out? Or has this never happened?

[centurian]

So to answer the OP - seems like your mate is talking out of his backside

[psychocandy]

Not at all. The application questionnaire is not particularly in depth - we are only asking a handful of yes/no questions to try to get an overall feel of where the contractor stands. Sadly IR35 isn't as black and white as that, so the insurance covers the massive grey area. Equally, because many of the questions we ask are hypothetical, we couldn't use the initial application to fall back on and wriggle out of claims.

For instance, let's say the contractor has, to the best of his knowledge, a right of substitution both in the contract and in reality. If HMRC interviewed his end client and they completely went against what the contractor thought, he'd be in all sorts of trouble. This is the sort of situation the policy is designed for.

Any number of things could go wrong in an IR35 enquiry. There have been plenty of cases where the contractor was in a seemingly strong position, only for HMRC to focus on a specific area that causes a lot of damage.

I can agree with QDOS. I did the questionnaire they talk about and they were happy to agree to take me on as insured under this policy. Nothing too dodgy in the questions asked to be honest.

[Qdos Contractor]

@Qdos Consulting: Would you not say there is an element of reverse Catch 22 to this policy?: I looked at it for clients last year (I'm an accountant and carry the TaxWise insurance) but it seemed to me that the only people who were able to get the cover were those who had such strong working practices etc., that it made it all but 100% certain they would never need to claim.

Not at all. The application questionnaire is not particularly in depth - we are only asking a handful of yes/no questions to try to get an overall feel of where the contractor stands. Sadly IR35 isn't as black and white as that, so the insurance covers the massive grey area. Equally, because many of the questions we ask are hypothetical, we couldn't use the initial application to fall back on and wriggle out of claims.

For instance, let's say the contractor has, to the best of his knowledge, a right of substitution both in the contract and in reality. If HMRC interviewed his end client and they completely went against what the contractor thought, he'd be in all sorts of trouble. This is the sort of situation the policy is designed for.

Any number of things could go wrong in an IR35 enquiry. There have been plenty of cases where the contractor was in a seemingly strong position, only for HMRC to focus on a specific area that causes a lot of damage.

[Alan @ BroomeAffinity]

@Qdos Consulting: Would you not say there is an element of reverse Catch 22 to this policy?: I looked at it for clients last year (I'm an accountant and carry the TaxWise insurance) but it seemed to me that the only people who were able to get the cover were those who had such strong working practices etc., that it made it all but 100% certain they would never need to claim.

[Qdos Contractor]

If your found to be caught by IR35, then QDOS pay your fine

If you get investigated and have fines / back tax, you have to pay that - they just pay the legal cost.

Actually, the policy does cover the back tax. It covers all tax, NI, interest and penalties in respect of IR35 enquriries - i.e. everything (up to the indemnity limit, of course).

The policy is not insuring any kind of criminal fine or penalty. As you will see in Lisa's link, whilst criminal fines/penalties are uninsurable, civil fines or penalties are generally viewed as insurable provided they have not arisen as a result of fraud, dishonesty or a deliberate act.

Our policy specifically excludes any claim which arises as a result of fraud or dishonesty, and contains a further exclusion in respect of circumstances where public policy would prevent the application of insurance.

The TLC35 insurance was constructed by ex-HMRC inspectors and was reviewed and approved by insurers prior to being released to the market a number of years ago.

[SneakySimon]

TLC35

I have that insurance and without the documents, I am pretty sure that it covers the following:

Legal cover for any investigations
If your found to be caught by IR35, then QDOS pay your fine

If you get investigated and have fines / back tax, you have to pay that - they just pay the legal cost.

All above is from memory - recomend you check your documentation.

[LisaContractorUmbrella]

Allen & Overy | Areas of Expertise | Insurance: fines and penalties

HTH

[SueEllen]

I have QDOS TLC35 insurance which, I believe, covers me for any taxes and penalties imposed by HMRC. I have a friend who is fairly experienced in the insurance world (he isn't some guy on the phones for Hastings Direct) who insists it is illegal to offer insurance which pays out for taxes and/or penalties owed.

Ask your friend for the case law, the Act or regulations/guidelines from the appropriate regulator that makes this "illegal". If he can't come up with anything then you know how much is "insistence" is worth........