Determine Your IR35 Status
As well as protecting you from a range of risks, contractor insurance can be a factor when determining your IR35
status. Contractor insurance
may even have the added benefit of helping to put you outside IR35, which means you won’t have to pay income tax
and National Insurance Contributions (NICs)
as if you are an employee.
The three principle ‘tests of employment’ for determining a contractor’s IR35 status are control
and mutuality of obligation
(also known as MOO
). If you are under investigation by HMRC
, a status inspector will apply these tests to work out if you are genuinely in business. Sometimes, the results of these tests are not conclusive, so the inspector will then consider other aspects, such as whether you have contractor insurance.
Behaving like a business can be a deciding factor
A good defence against IR35
is to clearly demonstrate that you are not an employee, but a legitimate business. You can behave like a business by doing things like investing in your own equipment, working from a well equipped home office, outsourcing some of your work, such as subcontracting a research project to a freelancer, and by having contractor insurance.
If you have contractor insurance, such as professional indemnity insurance
, this is also a good indication that you are a business. That’s because if an employee makes a mistake at work, he or she will not have contractor insurance
and is unlikely to be held financially accountable. It is their employer who pays out for insurance policies, not the individual.
HMRC looks for ‘in business’ evidence, such as contractor insurance
So, if your limited company is paying out for a contractor insurance policy each year and can provide contractor insurance policy documents in your business’s name, that can be pretty strong evidence that you are running a business. After all, if you were employed, would you pay out for unnecessary contractor insurance cover if your employer was picking-up the tab?
But you must retain all of your contractor insurance paperwork. This also applies if you make a claim. In fact, it can be further evidence that you are running a business and outside IR35
if you have to claim on your contractor insurance
for the theft or damage of a company asset you were using in the course of your business.