Will contractors need IR35 insurance after 6th April?

Q. I understand that from 6th April I will not be able to set my own IR35 status in the private sector unless I contract for a ‘small’ company. I also know that I will no longer carry the IR35 risk, which will be passed over to the fee-payer as part of these changes. With this in mind, is there any need for me to protect myself with IR35 insurance going forward? 

A. IR35 insurance will continue to offer important protection and peace of mind for contractors despite imminent reform to the off-payroll working rules. This is because HMRC is well within its rights to investigate completed contracts that took place well before changes to IR35 were enforced.

HMRC can open an IR35 enquiry into a contract that took place up to six years ago – sometimes even longer ago if the taxman suspects deliberate foul play. If HMRC finds you guilty of non-compliance on a previous contract (when you carried the risk), you could end up owing thousands in tax, interest and possible penalties. Without IR35 insurance in place, you would be left to foot the bill. 

For existing contracts that continue past 6th April and for those starting on or after this date, contractors engaged by medium and large private sector businesses and public sector organisations will no longer carry the risk. As explained, the liability will be transferred to the fee-payer, which will be your client if you’re engaged directly or the agency you work through. In other words, if you took out an IR35 insurance policy, it would not need to cover these contracts in theory. 

But while HMRC has said it will not enquire into existing contracts that transfer from outside to inside IR35 when end-clients start administering the rules, the taxman will be able to scrutinise engagements if it suspects “fraud or criminal behaviour”.  In other words, it could still happen. Let’s also remember that HMRC reneged on its word only recently, opening simultaneous IR35 enquiries into 1,500 contractors engaged by GlaxoSmithKline after stating that blanket IR35 reviews were not compliant.

It’s also wise to protect yourself with IR35 insurance when engaged by a ‘small’ private sector firm, given these companies will be exempt from reform. This exemption means you will retain the right to determine your own IR35 status and will continue to carry the liability. 

So taking all of the above into consideration, IR35 insurance – that can cover the cost of advice, defence, resulting tax liabilities and penalties – will offer contractors protection for years to come.

This answer was provided by IR35 specialist, Qdos Contractor.