IR35 Digest: Why and How professional indemnity insurance affects your IR35 Status

As experts in contract recruitment, we understand why it’s important for our PSC contractors to hold business insurance

As we’re sure you’re all aware by now, the private sector IR35 reforms will come in on 6th April this year – that’s less than three months away. This means it’s important that you, as a PSC contractor, are doing all you can to make sure you’re on the right side of IR35. Of course, if you’re genuinely operating outside of IR35 then there’s no cause for concern, you will simply need to be able to demonstrate it when required.

Operating as a business in your own right

The key to showing that you’re legitimately working outside IR35 is to be able to demonstrate that you’re operating as a business in your own right and therefore are not an employee, disguised or otherwise.

Holding business insurance has always been a helpful indicator of being in business on your own account and therefore working outside of IR35. Insurance demonstrates clearly that you are taking on contractual risks and liabilities as you are taking steps to protect yourself.

Setting yourself apart from employees

Having the correct insurance cover in place is a demonstrable difference between a contractor and an employee. Insurance is simply not a requirement for an employee as they would be covered by their employer’s own provisions. Therefore, the holding of insurance demonstrates a clear distinction between you and an employee.

There are also some other factors to consider. The taking on or presence of discernible financial risk is also a key indicator of working outside IR35. The fact that you, as the PSC, have had to purchase professional indemnity insurance demonstrates a financial obligation and a responsibility to protect your interests.

Ensure you have the correct cover for your needs before 6^th April

As a business, we require all of our PSC contractors to have professional indemnity and public liability cover in place as standard and would certainly recommend any other PSC contractors to hold the appropriate insurance. It’s good business practice to ensure that you’re taking responsibility for your work and actions and it protects you should anything unforeseen go wrong. So, it’s a nice added bonus that it also helps indicate your IR35 status as well.

The window of time between now and the IR35 reform in the private sector is growing rapidly smaller every day, especially as we’re now in 2020 and it’s now happening this year. Organising your cover is quick and easy, but it still makes sense to act sooner rather than later.