Warning over IR35 proof contracts sold with insurance backing

IR35 proof contracts story as supplied by the 3sixty Group and included in an ATSCo newsletter...

Now that we are into the Post-Judicial Review section of IR35 it is a good time to look again at some of the methods companies are using to liberate hard earned cash from contractors. One of these currently in operation is a combination of "IR35 proof contracts" with insurance backing. These insurance policies tend to indicate that they will pay significant sums for legal fees in fighting the Inland Revenue in addition to additional tax/NI liabilities if the Contractor still falls inside IR35. There appear to be three main problems with these types of policy:

1. The Contractor must adopt an IR35 proof contract irrespective of the way they actually work on site and... 2. If the actual way of working on site is not the same as the contract then the insurance is invalid and... 3. You must not send the contract to the Inland Revenue for testing.

It looks highly unlikely that many contractors will claim successfully on these policies. From a quick calculation - if the claim limit is say £50,000 and the policy costs say £1,000 then the insurance company must be working on the basis of less than one in 50 chance of actually paying out (not allowing for processing cost or profit). That is very low odds considering the current modes of operation in the IT industry.

Beware of entering into contracts that do not match your actual working practice and look out for companies who think that they can get you out of IR35 just by changing your contract. The Inland Revenue knows of these activities and has recently announced a doubling of its inspections. When the Inland Revenue comes calling, your insurance policy may well be useless...