Contractual Insurance Requirements

HMRC “well if that’s not true, what else in the contract isn’t true”

The benefits of having business insurance initially seem straightforward. Protecting your company’s interests against unforeseen events should be on every contractor’s checklist. Taking out insurance also shows that you are investing money into your company which from an IR35 perspective helps demonstrate you are genuinely in business on your own account. HMRC’s ‘Business Entity Test’ attributes 2 points for a requirement for Professional Indemnity Insurance.  

Most IR35 limited company contracts have clauses within them stating the amount of cover required by the contractor whilst providing the services.  Not having the insurance cover stated within a contract could be grounds for your client/agency to terminate your agreement due to breach of contract.

But there’s more. In a recent IR35 investigation, HMRC asked the contractor if they had business insurance as stated in the contract. When the contractor explained they did not, HMRC used this as ammo saying “well if that’s not true, what else in the contract isn’t true”. HMRC’s argument was that the entire contract may be invalid on this basis as the contractors actual working practices weren’t being reflected in the contract. Although this alone wouldn’t be enough to deem a contractor caught by IR35 it raises the question of whether the contract is an accurate representation of the daily working life of the contractor.  Having an IR35 compliant contract in place and checked by an IR35 specialist is great first step in safeguarding your limited companies status.

To make sure your contract won’t be thrown out by HMRC in the event of an investigation, make sure you cover yourself as stated within the contract. A review of your contract is an important step as this will often be HMRC’s first port of call in an IR35 investigation. In turn a review of your working practices is crucial as pointed out in the recent meeting with HMRC. Here at Qdos we offer a wide range of insurances and are able to cover most professions.