Reply to: IR35 insurance when closing down a business

[jamesbrown]

I think it’s a waste of money for other reasons, but you’re misunderstanding that second question. It isn’t asking whether you’ve seen what’s in the upper contract or to guess what might be in it. It’s asking you whether you know about any discrepancy. If you know nothing about the upper contract, then the answer is obviously no and you will be covered if a discrepancy arises (assuming there is still a “reasonable prospect of success”). Again, I think it’s a waste of money, but not for the reasons you cite.

[michaelC]

I am also interested in their tax liability insurance. However I think because of the below statements they ask you to confirm before insuring you, it makes the insurance useless.


1) You have autonomy over your method of work and are not subject to the same level of supervision or control as your clients’ employees.

2) You are not aware of any discrepancies between your company’s contract with your agency and your agency’s contract with your end client.

3) You are able to exercise a Right of Substitution. The right must exist in practice – a written right of substitution in your contract is not sufficient unless it would be honored by your client


The first statement is very vague and general. How would one know what is the supervision and control the of other employees in that company, so that he can compare to theirs? It's none of our business how the company supervises and controls the other employees.

For the second statement, how would one be able to check the contract between the agency and the end client? I've never been shown it, as it's none of my business.

The third statement, well its in the contract, but again how would you prove that the client would have honored that right?


You need to be able to prove the above 3 statements, in order for them to pay you the insurance. But if you can actually do that, then you can also show the exact same proofs to HMRC anyways, so you won't have to pay the tax liability anyways. So what's the point of this insurance then?

If they were serious about providing tax liability insurance they should just provide it just based on the contract we have between our ltd co and the agency as this is the only thing we can confirm to them with 100% certainty.

[heyya99]

Which insurance did you take for the first year?

QDOS tax liability

[philgo]

I'm in a similar situation. I did MVL last year and have received my distribution. My IR35 insurance is up for renewal. I am considering renewing because HMRC can still go back and investigate up to 6 years. Should I not be concerned about that and insure accordingly?

Which insurance did you take for the first year?

[eek]

I'm in a similar situation. I did MVL last year and have received my distribution. My IR35 insurance is up for renewal. I am considering renewing because HMRC can still go back and investigate up to 6 years. Should I not be concerned about that and insure accordingly?

Who are HMRC going to get the money from?

Think it though and stop worrying.,

[heyya99]

I'm in a similar situation. I did MVL last year and have received my distribution. My IR35 insurance is up for renewal. I am considering renewing because HMRC can still go back and investigate up to 6 years. Should I not be concerned about that and insure accordingly?

[philgo]

yes indeed, I believe you are right...it seems that QDOS offer is to good to be true...you pay £199 and they cover £25,000 liability...

[jamesbrown]

Another thing to bear in mind is that tax loss insurance will only cover you if there is a "reasonable prospect of success" - read the small print on TLC 35. It isn't intended to be a gotcha but, if there's a realistic prospect of success, you're really quite unlikely to lose

[jamesbrown]

I see your point and you might be right. However can you detail a bit more why you think tax loss is almost for sure not a guaranteed cost?

I just mean, statistically speaking, how many cases have HMRC won? They have a pitiful record, and many of the cases they lost were borderline. If you've had your contract and working practices reviewed and found to be outside, it is unlikely that an HMRC investigation will successfully find otherwise. As I say, the professional fees are a real and unavoidable cost, but how many cases have actually been lost and had taxes and penalties applied? Indeed, why is tax loss cover so cheap? I don't believe any of these insurers has ever paid out and I'm sure they'd love to be able to say they had - great advertising. IMHO, it's a complete waste of money, whereas cover for professional fees is very sensible, even if the risk of investigation is small.

[philgo]

Not particularly. I've personally always found IR35 tax loss insurance to be a waste of money given the extremely low probability of your being found inside when you have professional reviews that say otherwise (assuming they consider your working practices and assuming you keep on top of those working practices). The insurance you want (imho) is to cover professional fees, rather than tax loss, because professional fees are a guaranteed cost of an investigation whereas tax loss is almost guaranteed not.

I see your point and you might be right. However can you detail a bit more why you think tax loss is almost for sure not a guaranteed cost?

[jamesbrown]

Yes that's my thinking as well - Any feedback on QDOS insurance TLC IR35?

Not particularly. I've personally always found IR35 tax loss insurance to be a waste of money given the extremely low probability of your being found inside when you have professional reviews that say otherwise (assuming they consider your working practices and assuming you keep on top of those working practices). The insurance you want (imho) is to cover professional fees, rather than tax loss, because professional fees are a guaranteed cost of an investigation whereas tax loss is almost guaranteed not.

[philgo]

Right. Beyond that (i.e., beyond the point of closure), I wouldn't bother, simply because the bar to reinstating a company and transferring the liability to you, personally, is so high; I would argue impossible when you've been diligent enough to have professional contract reviews.

Yes that's my thinking as well - Any feedback on QDOS insurance TLC IR35?

[jamesbrown]

Thanks - So I guess I should have the insurance in place at least for 1 year with the maximum coverage (liabilities + representation cost) while I am closing it down.

Right. Beyond that (i.e., beyond the point of closure), I wouldn't bother, simply because the bar to reinstating a company and transferring the liability to you, personally, is so high; I would argue impossible when you've been diligent enough to have professional contract reviews.

[philgo]

Unless you've been negligent (which is near impossible if you had professional reviews and they reflect reality), then I don't see the point in maintaining it beyond the closure period (obviously, the closure must be approved by HMRC so you want insurance in place in the unlikely event that the closure triggers an investigation).

You cannot evade an IR35 liability by closing a company, but the scope for reinstating a closed company or transferring the liability to you personally via PAYE reg 72 is pretty remote, absent negligence or fraud.

As the liability is on YourCo, not you personally, you should also check which entity is being insured, because YourCo will no longer exist. You should also check whether your existing insurance is written on an occurrence basis or claims made basis, but I think it's the latter for Qdos (if the former, you're covered per contract, not per claim).

Thanks - So I guess I should have the insurance in place at least for 1 year with the maximum coverage (liabilities + representation cost) while I am closing it down.

[jamesbrown]

Unless you've been negligent (which is near impossible if you had professional reviews and they reflect reality), then I don't see the point in maintaining it beyond the closure period (obviously, the closure must be approved by HMRC so you want insurance in place in the unlikely event that the closure triggers an investigation).

You cannot evade an IR35 liability by closing a company, but the scope for reinstating a closed company or transferring the liability to you personally via PAYE reg 72 is pretty remote, absent negligence or fraud.

As the liability is on YourCo, not you personally, you should also check which entity is being insured, because YourCo will no longer exist. You should also check whether your existing insurance is written on an occurrence basis or claims made basis, but I think it's the latter for Qdos (if the former, you're covered per contract, not per claim).