IR35 Insurance for Contractors | Tax Enquiry Protection - ContractorUK
IR35 Insurance for Contractors
Protect yourself from HMRC enquiries and potential tax liabilities
Whilst you will make the best efforts to ensure you are operating compliantly with the IR35 legislation, which for most, will mean operating 'outside IR35', HMRC have never and will be unlikely to ever, release their selection criteria for enquiries.
With this uncertainty around the process for selecting companies, coupled with an opinion-based determination for IR35 status which leaves ambiguity for any contractor trying to ensure they are operating compliantly, and the potential for the upper-level contract to be used against them despite having no right to ever see it (which is commonplace), any contractor remains at risk of investigation for IR35.
Dealing with HMRC yourself - particularly in an IR35 enquiry - is difficult, and it's far better to have someone with experience of handling investigations to fight your corner. Having IR35 insurance in place will provide you with the reassurance that, even if the worst was to happen, you wouldn't be facing a potentially crippling sum.
There are two types of policy available to contractors that will cover tax and IR35 risks:
1
Defence Only
Firstly you could consider a basic tax enquiry insurance policy, which will cover an expert's fees in handling your case in the event of an HMRC enquiry. This means that as soon as you get a letter from the Revenue notifying you of a review or enquiry, you can send it to the expert and they will handle things from there.
2
Comprehensive
A more popular option is to take out a full policy which will not only cover an expert defending your case in any HMRC enquiry, but also the liabilities if you are subsequently found to be caught by IR35. Given that being found to be inside IR35 is likely to result in a demand running into the tens of thousands of pounds, it is obviously a risk that many contractors are keen to avoid. Comprehensive IR35 insurance policies can be provided with differing limits of indemnity to suit your liability risk (dependent on day rate and length of time contracting for example).
Frequently Asked Questions
IR35 experts have described the off-payroll working rules as "a mess" and "extremely onerous" for both businesses and contractors. The rules cause "widespread confusion" and have produced "a huge range of unintended consequences". The central problem with IR35 in its current form is that it discriminates against small businesses who legitimately want to act as contractors, but are frozen out.
Many larger businesses are applying a blanket judgement to refuse limited company SMEs as a contractor — even in cases where a CEST certification has been carried out — in order to limit exposure to risk of any compliance checks by HMRC. This approach, while protecting clients from potential tax liabilities, has frozen out many legitimate contractors from opportunities.
The financial risks can be substantial. Public sector bodies like Natural Resources Wales (NRW) have faced significant liabilities due to IR35 misclassifications, with NRW making a £19 million payment to HMRC, later adjusted to a £14 million liability. Being found inside IR35 can result in tax demands running into the tens of thousands of pounds for individual contractors.
In the Joanne Maclean v PELC case, the Employment Appeal Tribunal examined key factors including: personal service (whether you must perform the work yourself), mutuality of obligation (the obligation of the client to provide work and your obligation to accept it), and the reality of the working relationship. The case highlights the complexities in determining employment status and the blurred lines between tax and employment rights that affect IR35 determinations.
HMRC have never released their selection criteria for IR35 enquiries and are unlikely to ever do so. This uncertainty around the process for selecting companies, coupled with the opinion-based nature of IR35 status determination, leaves ambiguity for any contractor trying to ensure they are operating compliantly. This is why having IR35 insurance in place is important — any contractor remains at risk of investigation.
The Conservative Party has indicated they would "look again at reforming IR35" if returned to power. Shadow business secretary Andrew Griffith MP chaired an IR35 policy meeting in November 2025, asking experts what a future Conservative Government's policy should be. However, experts note that any government change could be as far off as 2029, and by then, employment status and the IR35 framework could look completely different.
The 2017 (public sector) and 2021 (private sector) off-payroll working reforms shifted responsibility for determining IR35 status from contractors to end clients. This has led to a marked decline in self-employment across the economy, with clients often making blanket "inside IR35" determinations to avoid compliance risk. The reforms have been described as having "created problems for business" and being "an obstacle to growth".
Comprehensive IR35 insurance covers both expert defence costs in handling your case during any HMRC enquiry, and the tax liabilities if you are subsequently found to be caught by IR35. Policies can be provided with differing limits of indemnity to suit your liability risk, dependent on factors such as your day rate and length of time contracting. Basic "defence only" policies cover only the expert's fees, not the potential tax bill.
Note: This information is provided for contractors seeking IR35 insurance coverage. We recommend researching multiple providers to find the policy that best suits your individual circumstances and risk profile.
