Amendment: On March the 18th 2020, the Government announced that the roll-out of private sector IR35 reform would be postponed until April 2021 due to the Coronavirus Pandemic. Our update regarding this change can be read here.
This is a key question that will be on a lot of contractor’s minds amid the uncertainty of IR35 off-payroll reform.
For contracts that start on or after April 6th, contractors engaged by medium to large private sector businesses will no longer carry the IR35 risk. The same also applies to existing contracts that continue past April 6th.
The liability for the risk lies with the fee-payer ie: your client if you are engaged directly or the agency you are working through.
Therefore, in theory, if you had taken out an IR35 insurance policy you would not need it to cover these contracts.
A word of precaution
Contractors should be aware that thinking they are no longer at risk of a HMRC investigation is not the case.
HMRC can open an IR35 inquiry into a contract that the contractor undertook up to six years ago. Inquires can be opened into contracts older than six years if the HMRC believes there is evidence of deliberate tax avoidance.
If HMRC finds you guilty of non-compliance for a previous contract (when you carried out the work) you could find yourself owing thousands of pounds in taxes and penalties as a result. With having an IR35 insurance policy in place you would be left to foot the bill yourself.
HMRC will still be able to investigate contracts that transfer from outside IR35 to inside IR35 when fee-payers begin administering the new rules, if it suspects foul-play or criminal behavior.
HMRC stated there is evidence that contractors in the pharmaceutical industry have wrongly categorised their employment status and in vast numbers.
Ensure you’re protected from IR35 when working for small businesses
It would be prudent to protect yourself against IR35 when you are engaged by small private sector businesses, as they will be exempt from the reform as they will be classed as a ‘small organisation’. This will mean you as the contractor will retain the right to determine your own IR35 status, meaning you will carry the liability.
The definition of a ‘small organisation’ is similar to that defined in the Companies Act 20061.
A small company must not meet two of the following criteria:
- Net turnover exceeding £10.2m
- Balance sheet totalling more than £5.1m
- More than 50 employees
Insurance for IR35 is available in many forms including: Tax Enquiry & Legal Expenses Insurance, and Contract Reviews (including Statements of Work), that can cover the costs of advice, legal representation, and any resulting tax liabilities and penalties.
- UK Public General Acts, Companies Act 2006 [Online] http://www.legislation.gov.uk/ukpga/2006/46/contents
If you would like to speak to one of our IR35 experts about your IR35 status, please contact 0333 321 1403 for details and to book an appointment.