Unfortunately, some unscrupulous recruiters are requiring contractors to buy IR35 tax insurance for engagements where the client is within the scope of the off-payroll legislation. Here are some reasons why you should NEVER buy IR35 insurance, especially when contracting via a recruiter and the client is medium or large:
- There is no insurable interest. The fee-payer is liable in law for any underpayment of tax, NI and the Apprenticeship Levy, not the contractor. The insurance policy is automatically void as a matter of law.
- You have no control over the status determination statement process which is essential for an IR35 policy. Online tools that fail to identify the terms that support an outside IR35 determination and reference the project (not role) produce void results. The SDS doesn’t exist and you may end up being liable for the client’s negligence in relying on CEST (Cheating Every Self-employed Taxpayer). CEST has no legal basis and it’s a fallacy that HMRC will stand by the results. CEST cannot produce a valid SDS, and no amount of internal processes can save a CEST result. It’s tragic to see large companies using CEST (and similar) instead of getting expert legal advice. A document dressed as an SDS can’t be saved by simply referring to the relevant section of the Income Tax (Earnings and Pensions) Act 2003 – just accept that it’s a job for a person with a post-graduate legal qualification and relevant training.
- The Managed Service Companies legislation will apply as the recruiter offering the insurance policy will lose its statutory protection and be deemed an MSC provider.
- Your contract is likely to contain an indemnity clause protecting the recruiter from liability arising from the MSC legislation. Words in contracts have meaning. Don’t mess with “indemnify and hold harmless”.
- Exclusion clauses render policies utterly worthless. If the policy was originally approved on the basis of a contract which requires the contractor to work for a certain number of days per week and describes the services with reference to a role or ongoing requirements, then IR35 applies without exception. In such circumstances, the insurance policy will be withdrawn when the claim is assessed in detail. It’s negligent legal advice to rely on working practices to save a bad contract.
- IR35 insurance does not affect an insurance company’s right of subrogation, i.e., the right to recover the loss from the client if the client is at fault by imposing control over the contractor.
- The client won’t be protected by the Third Party (Rights Against Insurers) Act 2010 if the policy is void for lack of an insurable interest.
Recruiters and insurers promoting IR35 insurance for engagements involving medium or large UK clients are at risk of claims for negligent misstatement and complaints to the Financial Ombudsman Service. It’s the new PPI.
Contact Martyn Valentine on 07788 773871 or firstname.lastname@example.org now for 15 minutes of free legal advice.