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IR35 breakthrough – a new underwriter agrees to pay everyone's tax bill

Breaking news on the IR35 scene – a new underwriter has agreed to pay the entire market's tax bills if clients get the determination wrong. This breathtakingly new entry into the IR35 market by a new unknown underwriter is set to solve the current problems for everyone, everywhere, all at once.

Dave Chaplin, CEO of ContractorCalculator, says: "These new policies are frankly incredible, or to steal a phrase from HMRC - too good to be true - and that's because they are."

How does the new ‘magical’ scheme work?

Despite having no tax risk under the new off-payroll IR35 reforms, the contractor can pay only a few hundred pounds and protect the risk of anyone else they work for, to the tune of millions of pounds.

This ground-breaking advancement in insurance is "almost magical", says Chaplin, "because normally, the buyer has to have some insurable interest for an insurance policy to be valid. But in this case, it seems not. Black is now apparently white."

The "IR35 Snake Oil Protection" policy works by gently dipping the contractual paperwork into a bath of water containing just a few drops of the magic solution. Hey, presto, the entire supply chain becomes blind to the risks and cracks on regardless.

Chaplin says: "The incredible breakthrough appears to be leveraging the scientific evidence that supports homoeopathy. Clearly, the strength of the policy is in its weakness."

How do claims work?

The claims process is easy and best understood by understanding how HMRC seeks to enforce the new off-payroll rules.

First, HMRC enquires with the client and focuses on the client's processes. The client isn't liable for taxes if reasonable care was met when making the status decision and if the worker received a valid status determination statement. This process checking can take months. If there are issues, then HMRC will drill down further and start to look at individual assessments. A full investigation by HMRC can take years.

The claims process:

  1. For a valid claim, the claimant has to first locate the contractor whose engagement is under review within 30 days of HMRC knocking on the door. Despite HMRC being able to go back four years and not identifying a contractor in the early stages, this should be a doddle, right?
  2. The claimant must prove that the client confirmed the accuracy of any status assessment, presumably because the underwriter may want to sue the client for giving false statements at a later date – in which case, how are they covered? Anyway, in the unlikely event the client has exercised reasonable care, they probably don’t have a tax bill, so why sign a document giving them potentially more risk?
  3. The claimant must also demonstrate that the client confirms that the contractor has a valid right to substitute and that the contractor has complete autonomy over their work. Some may recognise those as slam dunk factors towards HMRC's inability to ever win a case. So, why is insurance needed?
  4. The claimant must find Usain Bolt, challenge him to a 100m race, win, and in doing so, break the world record.

Ok, we at ContractorCalculator admit. We made one of those hurdles up – granted, it’s the smaller one.

Some cynics might suggest that the only people who can claim are the ones who never need to, but it's essential to be a believer. Belief in a product makes it sell – as every salesperson will tell you.

Still, if you can achieve all those things, the claim will proceed, and you are entitled to millions of pounds, all paid by Gullible Underwriters Limited.

One last thing - don't forget, insurance firms have to subrogate their losses (i.e. chase other people to minimise their pay outs), which includes you, the contractor who bought the policy. If you didn't buy the policy, then you don’t have this risk, and you get a full tax refund from HMRC anyway due to the offsets flaws in the legislation. But hey, go for it!

Enjoy April 1st, folks, and have a pint of snake oil as you consider signing the bottom line.

Published: 01 April 2023

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