IR35 tax loss insurance - yes or no?

[Lewis]

I was thinking about IR35 insurance and whether there is any point paying exra for tax loss protection (which costs about £250 more).

I can see from PCG that only 3 IR35 cases have been lost in around 1500. Which puts chances of losing an IR35 case if investigated at around 0.2% (assuming you have good case). But I wonder how many people are investigated, I don't have the foggiest but lets say 1 in a 100. That would put the chances of having to pay back taxes, interest and penalties at 0.002% or 1 in 250,000. It's definitely worth paying the couple of hundred quid to be represented, even if you believe your case is strong, but is it worth the extra for tax loss insurance?

I'm thinking that even if the loss rate is tiny it might still be worth protecting tens of £1000s for just £250. Plus there is the peace of mind that comes with knowing the money is safe.

So, what do people think the investigation rate is actually (are there any figures) and would anybody bother with the tax loss insurance on top of legal fees insurance? Just interested to hear opinions rather than being in any particular dilema myself ...

[malvolio]

Snag is, the people that offer the protection insurance will insist on vetting your contract to see if you are in or out of IR35, and then only insure you if you are out. So you are paying for insurance for an event that in the expert view of the insurer is not going to happen.

So good use of money then, NOT...

[dmini]

Insurance - is that, options as to pass/fail on IR35, again are that. I have seen one person today on this forum say their contract, almost certainly matching mine has failed. Mine passed its assessment - different company doing the assessing.
I know many people who don't have contents insurance on their house, reckoning they will not use it, so its money saved, couple of hundred every year.
However, having lost almost everything 2 months ago, I'm very glad I have got contents insurance

[Lewis]

I know many people who don't have contents insurance on their house, reckoning they will not use it, so its money saved, couple of hundred every year.

I'm obviously risk adverse ... not only do I have all my insurances I have protected no claims as well! I've never claimed on home insrurance and haven't on car insurance for over 10 years. But like you say if you are that 1 in 250,000 (by the way do you reckon that's a realistic estimate?) how gutted would you be to have to pay hector £20K which you could have protected for just £250. But then I appreciate Malvolio's point 100%. I guess it's a personal choice.

Then there's the risk that tax loss insurance will make you an MSC but I think that's not going to hold up .... http://www.shout99.com/contractors/s...le.pl?id=42889 ("Does having tax loss insurance make you an MSC?")

[Vito]

I have read many posts on here from people advising that contractors operating through their Limited should pay themselves NMW to help avoid a HMRC enquiry...would it not be cheaper to take insurance for both investigation costs and tax pay-back and then just pay salary of £5k?

I think I am IR35 friendly but it seems impossible to be sure and I'm not keen on risk...so therefore should I load up with Insurance and tell Gordo to do his worst...or should I pay NMW and hope that this reduces the risk of him coming knocking on my door...

[Lewis]

I have read many posts on here from people advising that contractors operating through their Limited should pay themselves NMW to help avoid a HMRC enquiry...would it not be cheaper to take insurance for both investigation costs and tax pay-back and then just pay salary of £5k?

I think I am IR35 friendly but it seems impossible to be sure and I'm not keen on risk...so therefore should I load up with Insurance and tell Gordo to do his worst...or should I pay NMW and hope that this reduces the risk of him coming knocking on my door...

I think there's a balance ... even having insurance I'd rather not get the knock on the door, might not lose out financially but it'll be stress I'd rather do without ... my insurance policy insists I pay a minimum of £9,500 and they apply a £1000 excess (to tax loss part of insurance) if I pay less than £15,000. But as long as the insurance is valid I'm going to go for somewhere between £10K-£15K.

[Vito]

Fair point...

I've been advised by my accountant today to take a salary of £10k so I am going to follow his advice I think...

I am also going to look at protecting myself against an investigation but am still not convinced by covering against losing given that I believe I am IR35 friendly.

One thing that you might want to look into though...is it you or your Limited that would be liable for any tax back if you were to lose an IR35 investigation? My assumption is that it would be your limited that would be culprable, so providing that you take profits out of the company via dividends on a regular basis (i.e. Quarterly) then you shouldn't be too exposed...

Not sure this is ethically the right way to view running a business but it might be an option rather than paying for extra insurance?

[malvolio]

Don't listen do you? Why insure for something you don't need? And Vito's talking a load of ill-informed crap as well.


Well WGAS, it's your money. Live and learn, old boy.

[Vito]

Ha ha

It took me 5 posts to get some abuse...not bad for a Newbie!!

What is nonsense about what i said...are you saying that an individual would be liable for paying tax back following a lost IR35 investigation and not the company?

[THEPUMA]

it you or your Limited that would be liable for any tax back if you were to lose an IR35 investigation?

It's almost always your company.

But it is often more tax-efficient to leave surplus cash in the company than drawing the lot out so you have to weigh up the additional risk of successful IR35 challenge (but as mentioned earlier this is probably 1/250,000).