Do Freelancers need to take insurance against IR35 or is there another way?

With the recent announcement in October’s spending review of an increase in government spending (£1billion) which aims to clamp down on tax fraud, freelancers need to be vigilant to ensure that their tax affairs are in order.

Some companies are offering IR35 insurance (where the freelancer is ensured against the costs of defending an IR35 review from the Inland Revenue). Other companies, such as Brooksons,  take a different approach. So, what should a freelancer do?

I asked Andrew Webster of Brooksons to explain why they do things differently. 

Neil Lewis, Enterprise Freelance Fair, Question: Should I take out IR35 insurance?
 
Andrew Webster, Brookson, Answer: IR35 Insurance is perceived as an ‘easier’ option to that of having a robust IR35 employment status review

NL Question: What does IR35 Insurance cover?

AW Answer: In the main insurance policies cover the contractor for costs of an Inland Revenue review and defence i.e. through the legal process, etc. It does not and should not cover the contractor for any liabilities, if it does then there is potential Managed Service Company exposure!

NL Question: What does Brookson recommend and why?

AW Answer: Brookson recommend a robust IR35 employment status review. It is better to ensure that the freelancer is not at risk in the first place than insure the costs of fighting a claim by the Revenue when the status is unclear or poorly defined.
Freelancers are given the peace of mind knowing when they have undergone an Inland Revenue agreed IR35 compliance provision to determine their ‘self employed’ status.

A robust review should be undertaken by a compliance team, para legal’s and solicitors; essentially employment law specialist. It should not be undertaken by ‘administrators’ or even accountants.

Where Brookson freelancers (with a limited company) have completed this process throughout the term of the assignment / project and are deemed ‘genuinely self employed’ if challenged by the Inland Revenue then it is less likely that they will be deemed as a ‘disguised employee’ of the end client.

NL Question: If the freelancer is challenged by the Inland Revenue, what will Brooksons do?

AW Answer: Brookson will support the freelancer throughout the review as far as the Special Commissioner. Again we cannot pay any liability due to Managed Service Company implications.

NL Question: Any final advice Andrew?

AW Answer: In our view, Brookson’s, the robust IR35 review is best – so long as the freelancer tells the truth through the process and informs us of any significant changes that might affect the review if carried out again. We are very confident in the effectiveness of our review that we are willing to make our clients a promise – you can read more about it here http://www.brookson.co.uk/revolution/Tax-Promise/.

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Written by Editor on November 11, 2010 and filed in Featured, Money, News


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