IR35 insurance – essential cover for limited company contractors

IR35 insurance will protect your limited company in the event that an enquiry is made into your tax return, or via a PAYE compliance visit. In some cases, this could result in a Tax Tribunal.

Clearly, the costs of defending yourself during an investigation can be substantial, and for this reason, many small business owners and contractors take out tax protection insurance.

Contractors and freelancers, in particular, often take out cover to protect them in the event of an IR35 dispute.

What is IR35, and what happens if you are caught?

IR35 is tax legislation, which came into force in 2000. If you provide personal services to clients via your own limited company, you could potentially be affected by these rules.

The main aim of IR35 is to target so-called ‘disguised employment’, whereby an individual might provide services via an intermediary company, but in reality, they work in the manner of a traditional employee.

If the terms of the person’s contract, plus working practices suggest that this is the case, the company will be liable to pay normal employment taxes on any contract income, rather than be taxed as a business.

If your contract is caught by IR35, then you could potentially be liable for many thousands of pounds of additional tax.

Why take out a tax investigation insurance policy?

  • Tax investigation cover of this type are not expensive and ensure that all representation costs are covered by the insurer. It’s possible to get cover for a little over a hundred pounds per year, including cover for retrospective tax years.
  • IR35 insurance will cover your company in the event that HMRC decides to open a compliance review.  It will cover any professional representation costs for this type of investigation, plus a wide range of other possible situations.
  • When you compare that to the potential costs of paying accountants and solicitors to help you defend an investigation, you quickly see why more and more business owners are taking out tax investigation insurance.

IR35 Insurance – What is included?

Tax protection covers a wide range of possible tax disputes, including IR35 insurance. At Bytestart, we have worked with the UK’s leading provider of IR35 protection, Qdos, for over 15 years now.

The company provides two main types of policy – the first covers professional representation fees, whilst an even more robust product (TLC35) will even cover any additional tax liabilities you’re deemed to owe if you lose a case against HMRC.

Tax enquiry cover @ £99/year

This provides up to £50,000 of professional representation costs, in case your company faces one of the following types of official investigation:

  • IR35 disputes.
  • PAYE or NIC disputes.
  • VAT disputes.
  • Section 660 enquiries.
  • HMRC aspect or full enquiries.

Tax liability cover from £199/year (TLC35)

Alongside the cover provided above, this product also covers any tax and penalties your company is deemed to owe following an official investigation

  • Tax liabilities, if your contract is caught by the IR35 legislation
  • Any penalties levied, if your contract is caught by IR35
  • Any interest levied on the above.

The premiums for the TLC35 product vary according to the level of cover you want to take out.

How do you take out IR35 protection?

There is a wide range of companies providing tax investigation insurance. Before you take out a policy, compare a few providers and go with the one you feel most comfortable with. An IR35-specialist is a must if you’re a professional contractor.

Remember the policy with the lowest premiums, may not be the best policy.

Click here for an instant IR35 insurance quote from Qdos

Last updated: 21st April, 2021

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