IR35 has been around now for 12 years and those contractors who have been unlucky enough to have been investigated by HMRC will know the importance of proving that you are in business on your own account. There are many facets to an enquiry which can lead to the decision of whether or not you have been caught by this legislation. It is therefore imperative that you are able to demonstrate the differences between yourself and the employees of the business you are contracting to.
This article will concentrate on the importance of Contractor Professional Indemnity Insurance (PI insurance). Most contracts will require you to have a level of PI insurance, this is designed to protect you should a mistake occur which ultimately costs the end client some form of financial or time based loss to rectify the matter. PI insurance will cover that liability providing there was no obvious intention to cause a problem in the first instance.
Carrying PI insurance is not a requirement for an employee as they would be covered by the end clients own insurance provisions. This is therefore a clear distinction between contractor and employee and the fact that the contractor has had to purchase the PI insurance cover demonstrates a financial obligation and a responsibility to protect the interest of the contractor.
Whilst PI insurance is not the only factor to take into account it is important to protect yourself against potential financial ruin. If you do not have PI insurance in place you personally could be at risk of being sued. It is a common misconception that an individual is protected financially if operating through a Limited Company. If you do not have PI insurance in place and have acted recklessly you can still be personally sued. Simply not having PI insurance in place could be considered reckless.
There are many PI insurance policies available to contractors, companies like Qdos Status Services Limited specialise in providing contractors with all their insurance needs and advice on validity of contracts and IR35 matters. They will review your contracts and provide you with a competitively priced PI insurance quote.
As stated PI insurance is only one facet to ensuring you are correctly operating outside IR35. If you are contracting either direct by means of your own Limited company or through an agency it is a fair chance all contracts within the chain will specify a level of PI insurance is required. This is not only good practice but will also protect you against a potential loss that could cost you your house or any other valuable asset you may own.