Contractors’ Questions: Must I insure against a wrong outside IR35 decision?
Contractor’s Question: Once private sector IR35 reform is implemented in 2020 by a version of the April 2017 off-payroll rules, could a client and/or a recruitment agency require contractors to take out a form of insurance to pay out, in the event of an incorrect IR35 status assessment?
Expert’s Answer: There are a few things to consider here.
Firstly, I assume that by an incorrect assessment, you are referring to the situation whereby an outside IR35 decision is found to be incorrect and therefore there is additional PAYE and NIC to pay.
A client or agency could ask you to take out such a form of insurance but we would advise caution. The responsibility to determine the assessment sits with the end-client; the responsibility to deduct the appropriate tax sits with the fee-payer, usually the recruitment agency.
Any insurance policy taken out would need to be carefully scrutinised to ensure that the correct party is covered and you would need upmost confidence in your end-client’s and agency’s processes relating to your assessment, so that nothing they do could invalidate the policy.
There is also an issue with whether it is ‘right’ to ask for such policies. Managed Service Company legislation prohibits managed service providers from promoting the use of a limited company and then insuring against the risk of an incorrect IR35 assessment. Many agencies will not want to take the risk of falling foul of these rules.