Contractors and the self-employed have been in the news more than usual over the last year. Whether it was the Autumn Statement, the Draft Finance Bill, or last month’s Self-Employment Review, it’s fair to say that the importance of contractors to the British economy is firmly on the agenda.
Figures released last year indicated that the number of individuals entering the contractor community has grown dramatically over the last 8 years. There are now close to 2 million independent professionals working in the UK – an increase of over 35% since 2008.
The number of contractors taking out insurance has increased strongly too – a clearer indication than most that compliance is becoming a significant factor. It doesn’t matter whether you’re an automotive engineer or a cost estimator, a design engineer or a system engineer – meeting the obligations of your end client is a must.
But what does ‘being compliant’ actually mean? In essence, a contractor must have adequate insurance in place before undertaking any role in order to cover their main exposures and meet the contractual obligations put in front of them by any prospective employer.
You may not feel that you need employers’ liability cover, for example. After all, if you’re a contractor it’s highly unlikely you’ll actually have any employees. However, the vast majority of contracts on offer are standardised and require the contractor to have employers’ liability insurance regardless of whether they have any employees or not. It’s also a legal requirement if you’re employing a partner or spouse (for admin work, for example), and will cover you if you have a substitution clause in your contract. It’ll generally make up a very small proportion of any cover you take out, so it’s a worthwhile (if miniscule) investment.
Having insurance in place will also act as a key IR35 indicator. We know that the ins and outs of that much-maligned piece of legislation can be a little obtuse at times, but it’s essentially aimed at uncovering what’s known as ‘disguised employment’ – when a contractor works on a contract through their limited company, but their working conditions and the contract in question indicate that they are in fact working in the same way as a traditional employee.
If one of your contracts is caught by IR35 legislation (i.e. your work appears to be more like that of a traditional employee) your income will then become subject to normal income tax and National Insurance contributions and you will lose the advantage of the low salary, high dividends tax arrangement that many contractors benefit from. Holding professional indemnity insurance as part of any cover you obtain can improve your IR35 stance significantly.
Holding insurance has many other benefits aside from the peace of mind that comes with being compliant. It’s a tax deductible business expense – any money that you spend on your insurance policy will remain tax free. Most policies that include professional indemnity cover will also include retroactive cover – extremely useful as it covers you for previous work. As long as you have insurance in place at the time a claim is made, you’ll be covered for any claims made against you for work you’ve done previously (generally within a six year period).
If you’re looking for contractor insurance, or if you simply have any more questions about being compliant, then don’t hesitate to get in touch with our customer services team. You can call us on 01242 808740, or email at firstname.lastname@example.org. Alternatively, you can get in touch with us over on our Facebook, Twitter, or LinkedIn pages.