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Who else needs IR35 Insurance?

freelancesupermarket.com newsroom

RSS 14 August 2009
Contractors of any profession should be aware at all times of the possibility that a tax investigation may place them inside IR35 quite unexpectedly - and that insurance against this unforeseen financial hardship may be the only way to have true peace of mind.

In the event that your business is selected for an enquiry or compliance visit, your status under IR35 will be reviewed to determine whether you are truly a self employed contractor or merely a "disguised employee."

The latter requires deducting PAYE taxes in the same fashion as any normal employee of a company, and if you are inside IR35 but haven't correctly applied the deemed employment payment calculation to your salary, large amounts of backdated tax may be required.

The difference between being inside or outside IR35 can spell a 20% increase in tax for a single year. Once a tax investigation is made, you may find yourself liable for several years of backdated income tax and national insurance contributions - a considerable sum, and frequently more than a small business has on hand.

Even before a conclusion is drawn on IR35, specialist representation during the tax investigation itself can be costly - especially if it ends in a Commissioners' hearing. It is frequently prudent, especially if your status is unclear, to take out insurance against this development.

Insurance aimed at IR35 coverage comes in two main forms. The first variety of IR35 insurance covers your representation costs in the event of an enquiry, compliance visit, or tax investigation. This is generally inexpensive, and on the order of a few pounds a week.

More comprehensive IR35 coverage provides insurance against any actual judgement of tax. An investigation may find that several years of tax are owed, and the expense may be prohibitive if one were to pay out of pocket; this variety of insurance costs three to four times that of simple representation, but provides much better peace of mind.

When determining the level of IR35 insurance protection needed, it is prudent to consider it a normal cost of doing business - every bit as important as liability coverage in the event of accident or mishap. If a tax investigation is called for, the security will be well worth the expense.

If you wish to be contacted about IR35 insurance, please request a call back from one of our financial advisors.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Great White Shark Cage Diving by hermanusbackpackers

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