When you work for yourself, there’s a lot to think about. Between meeting deadlines, juggling clients and ensuring you get paid on time, there’s also staying up to date with any governmental changes that could affect your business. With the private sector IR35 reform just on the horizon – April 2020 is less than a year away – and the public sector already feeling the effects of the legislative overhaul, it’s important that you, as a contractor, are prepared.
Perhaps you know you should get a contract review and look at some business insurances, but you're not sure exactly what products you need. Maybe you don't even know where to start. Either way, our guide will help to untangle the IR35 review and insurance options on offer so you can make the best choice for your business.
IR35 Contract Reviews
One of the most common suggestions across IR35 forums and guides to help you stay on the right side of the taxman is to get a contract review. Contract reviews are excellent at helping you understand where you fit into IR35 and what, if anything, you need to change to stay clear of the legislation. However, there is a plethora of review options to choose from – which one do you need?
IR35 Contract Review – Assessment
An IR35 Contract Review - Assessment covers off the key points in your contract that relate to IR35. Our IR35 consultancy team will search for clauses most likely to come under fire – for example, whether you have a personal service (or substitution) clause, whether your engager has any control over the way you do your work, or whether there are any signs of you being obliged to provide continuous services to your client. We’ll then provide a pass or fail based on the three key employment status determination tests (which you can read more about here) and give pointers as to how to improve any problem areas.
This is a great option for those that are confident that they’re not inside IR35 but are required to have a contract review to take out IR35 insurance, or have been asked to have a review by their accountant.
IR35 Contract Review – Full
An IR35 Contract Review – Full is a deep dive into your contract. Our IR35 consultancy team will thoroughly read every clause in light of IR35 and will pull out any potential issues in regards to the three status tests to provide a comprehensive list of improvements that need to be made, including wording change suggestions. You’ll get the same essential pass or fail result from both the Assessment and Full review, but the latter option offers more detailed explanations and covers every element of your contract.
This is the best choice for those that are confused over IR35, are genuinely concerned about their employment status, or want as much detail as possible in any contract feedback.
IR35 Working Practices Review
The IR35 Working Practices Review is a different product to the contract reviews we offer, but often accompanies them. Instead of submitting your contract to us, you instead fill out a questionnaire of around 30-50 questions (depending on your responses at certain stages) that examine your day to day work life, how you do business with your clients, and whether you behave as a contractor should in a workplace.
While contract reviews are widely encouraged, it’s actually your working practices and client relationship that HMRC will put under the microscope in the event of an IR35 investigation. If you’re worried about your employment status, or have clients that are concerned with where you fall in the off-payroll rules, it’s advisable to double up with a Working Practices review.
Additional Contractor Business Insurances
While all contractors should seriously consider having their contract reviewed, protecting yourself against the off-payroll working rules isn’t the be-all of business insurance. If you’re self-employed, there’s a wealth of risk you have to face. No matter how small the chance, just one claim from a client could bankrupt a small contractor.
So what business insurances do contractors need?
Professional Indemnity insurance, often referred to as PI, is one of the fundamental insurances for contractors. PI protects you and your business should your client allege that you’ve made an error or omission in your services. This can include inadequate advice given, negligence, or flawed designs. It also covers legal expenses when defending the claim, or any compensation needed to fix the problem.
PI protection is particularly important for professions that handle personal or financial data, or who’s designs or advice could have significant monetary repercussions if they’re not up to industry standard. Accountants, business consultants, chartered surveyors, and IT contractors are all high-risk when it comes to PI. Read more about PI insurance here.
Public (& Employers) Liability
Public Liability (PL) insurance covers the cost of a claim made by someone – client or member of the public - who has suffered injury or property damage as a result of work you’ve done. PL covers the ‘physical’ damage caused by a mistake. Whether you’re at fault as the contractor can depend on the amount of time passed and how the client’s maintained the work done, but proving liability can still result in a costly trial.
All contractors should consider having a minimum amount of PL cover, but those working in manual professions especially - like construction and the energy sector - will almost certainly need it. The amount of PL insurance you need will most likely be stated as part of your client contract.
It’s also worth bearing in mind that while PL isn’t required legally, Employer’s Liability (EL) insurance is - provided that you have two or more people in your company. EL cover pays for compensation costs and legal fees if an employee, or ex-employee, sues for illness or injury caused by their work – and it happens to be included as part of our PL insurance. Read more about PL and EL insurance here.
IR35 Tax Investigation Insurance
IR35 Tax Investigation insurance protects you from the potentially devastating effects of a tax investigation carried out by HMRC. IR35 has been reformed to challenge possible avoidance of tax and NI contributions. In particular, HMRC is looking for so-called ‘disguised employees’ who gain and carry out work via partnerships and limited companies. This makes freelancers and contractors prime targets for investigation.
If you find yourself being investigated under IR35, HMRC will ask you to prove that you’re NOT an employee. This can mean extensive court fees and loss of work while the investigation is carried out. This is what our IR35 insurance protects against. As part of the policy, you’ll also be provided with a tax and IR35 expert as defence should you have to go to trial which could prove pivotal for winning your case. Read more about IR35 Tax Investigation Insurance here.