Tax Loss Insurance for Contractors
For certain categories of tax investigation it is possible to purchase insurance to give protection in the event of an investigation finding against you resulting in a tax liability.
The purchase of Tax Loss insurance by contractors who have been working in the UK over the past few years might be prudent given the focus of the tax authorities on the requirements of IR35.
The financial consequences of an adverse IR35 ruling could be very substantial leaving the taxpayer with not just the outstanding tax and national insurance to pay, but also accrued interest on tax paid late and potentially penalties. Furthermore, liabilities may have accrued over a number of years and consequently the amounts involved could be large.
The insurance underwriter will need to be satisfied before accepting the risk that the consulting practice is structured and has been operated in a manner that is broadly consistent with the requirements of IR35.
Put another way, it would not be sensible to expect to be able to purchase insurance against this risk, if, when looked at objectively (again, applying substance over form) your consulting practice is in fact employing individuals despite contracts purporting that the relationships are business to business.
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