Dave Chaplin, CEO, ContractorCalculator:
When times get tough, that’s just the time to make sure you have decent contractor insurance in place.
We are entering a period of considerable change in the contracting industry. This means contractors are moving to permanent positions, some are taking extended breaks and living off previous earnings in low-cost countries for a year, others are out of work.
When in a contract and when times are good, most contractors have prudently invested in the security of insurance. The range of insurances available to contractors is vast, and a good broker or IFA can arrange cover for most eventualities.
There are also bundled insurance packages, like those members of the Professional Contractors Group can benefit from, which include all the core insurance contractors’ need. They also include extras many contractors do not think to ask for, but can find invaluable, and that PCG bundles together as it takes seriously its duty of care to its members.
Notably, most PCG packages include PAYE audit insurance cover, which pays for the cost of professional assistance should you find yourself under investigation by HMRC. You could be undergoing a PAYE inspection, which could develop into a full-blown IR35 inspection, and you will be supported throughout.
Coming back to the opening point, many contractors are tightening their belts and may well have reduced or no income. The temptation is to cut any non-essential expenses, which in some contractors’ eyes means cutting insurances and membership fees. And this is where things can go horribly wrong.
Just because a contractor has chosen to work as a permanent employee for a period of time, or is spending 12 months abroad living off previous income in a low-cost country until the market recovers, does not mean they won’t be subject to HMRC investigations.
HMRC can go back through the last six years of a contractor’s financial history, and in some extreme cases they can go back even further; 20 years is not unknown. And that’s 20 years of back taxes, interest and penalties. Bearing that in mind, insurance premiums don’t look that expensive after all.
If a contractor decides to cancel their cover, and gets the dreaded ‘we are going to inspect you’ letter from HMRC, of course it’s then too late to find an insurer willing to extend cover. That leaves the contractor to foot the bill for the professional advice needed during the investigation, or to try and wing it themselves, which is a very bad move: HMRC takes no prisoners.
So even if money is tight, or if your contractor limited company has been shut down, keep your contracting insurance policy current and pay the premiums.
Contractor insurance – don’t leave home (or work) without it!