In episode 10 of Unsure? Insure! we give the lowdown on IR35 insurance.
More and more freelancers are curious about IR35 insurance because of the off-payroll working rules that come into effect in April 2020 (update: this has since been postponed to April 2021). Let’s look at what IR35 insurance is, how it can help and how much it costs.
Change of legislation
The change in legislation sees private sector businesses being responsible for determining the employment status of ‘off-payroll’ workers. This new legislation ensures that HMRC can seek to recover any employment tax liabilities that arise if a business has failed to comply.
It's reported that HMRC estimates that only one in ten individuals who should be paying tax under the current IR35 rules is doing so correctly in the private sector. A lot of businesses are now looking to protect themselves if subject to an investigation regarding their tax status. Enter IR35 insurance.
What is IR35 insurance?
When people ask, “Do you offer IR35 insurance?” I interpret this to mean, “Do you offer insurance that can help me if there’s a dispute or enquiry from HMRC relating to IR35?”.
The answer is yes! There is tax investigation insurance for IR35 bundled with the legal expenses product. It also covers your compliance with regulations relating to national insurance contributions and VAT amongst other things. However, the spotlight right now is on IR35.
Every insurer is different. In some cases you can buy standalone tax protection insurance, but in With Jack’s case tax protection insurance falls under the legal expenses product. Legal expenses has a myriad of other features including a debt recovery service and legal documents, but let’s focus exclusively on tax protection insurance in this post.
How does tax protection insurance help?
Let’s say you receive a letter from HMRC challenging your status and/or tax liability and an investigation into your tax status begins. For a freelancer this could eat up precious time and mental energy because these investigations can drag on for a long time. You'll also feel out of your depth dealing with it as you're not a tax expert and enlising the help of an expert can quickly add up.
You can source an accountant to help you with the investigation. This would offload the time burden and give you peace of mind it's in the hands of a professional, but it's an expensive route and could cost thousands of pounds. In fact, we have seen estimates between £4500 - £7500.
Not many people have this kind of capital to hand, which is why tax protection insurance exists. You're exchanging the uncertainty of an investigation and expensive accountancy fees for the certainty of smaller, managable monthly payments.
If you have legal expenses insurance you can contact your insurer who can provide expert assistance and representation included in the cost of your policy. They can appoint a tax specialist to help you defend the enquiry, dealing with HMRC so you’re free to focus on your most important assets—your productivity. Your client work. Your mental health.
As a bonus, there’s also a tax helpline you can call at any time with concerns about complying with HMRC IR35 regulations and general tax questions. Whilst you may never have an investigation from HMRC, you can make sure you're on the right side of the law by using the helpline.
How much does this insurance cost?
Every insurer is different when it comes to pricing because products differ. You might find you already have this cover as part of your accountancy package. You can also look at standalone tax protection insurance.
If you’re a With Jack customer you can add legal expenses insurance to your policy for £65.71 per year. This is about £5.50 a month and will help you avoid the hassle of investing time and money into defending an investigation and keep you on the right side by giving you access to a IR35 helpline.
To recap, here's the lowdown on IR35 insurance.
- There’s a change in legislation that ensures HMRC can seek to recover any employment tax liabilities if a business fails to comply
- This can affect freelancers and contractors as it applies to off-payroll workers
- There is tax protection insurance to help with disputes as well as any questions you might have about IR35 regulations
- Every insurer is different, but With Jack customers can expect to pay £65.71 per year for this cover which falls under the legal expenses product
Get a quote or get in touch to add legal expenses insurance to your existing policy.