subject: Limited Company Pi Insurance [print this page] Tax and IR35 are hot topics for contractors at present, with HM Revenue & Customs taking great lengths to combat contractor's financial position status, and companies retaliating with services to then tackle IR35 concern. Amongst these ticking time bombs and hot potatoes, some commodities remain constant in their ability to sustain and aid contractors caught in the middle of the vast amount of tax worry. PI insurance is a clear example of this, having the ability to bolster the policy holder's standing regarding IR35, acting as a foundation should any HMRC involvement ever occur.
To those relatively dumbfounded by all of this talk of IR35 and PI, do not despair, contractor specific terms usually sound far more complicated than they actually are. IR35 is the name given to HMRC's tax legislation aimed at quashing tax avoidance through the use of limited companies. This basically stems from employees posing as contractors as a way in which they can avoid paying employment tax. PI insurance on the other hand, is the name given to professional indemnity insurance, and is a vastly popular form of small business insurance, relevant when discussing contractors.
Recently, due to severe increases in activity regarding the taxman and contractors, many companies are jumping on the bandwagon when it comes to financial aid. Because contractors often have to wait around for a lengthy period of time before they reap the benefits of payment from a contract, new initiatives have emerged to ease the tension of that far away payday. Money lenders are increasing their knowledge of the contracting profession, and many are providing services that enable weekly or monthly paycheques to be paid to a contractor throughout their contracts. This service would of course not be implemented if there wasn't a contract in place, and to have a contract in place, PI insurance is an obvious necessity.
Most professional contracts state the insurance as a mandatory commodity, and money lenders, banks, and of course the taxman, like to see a constant policy that proves financial risk, aiding a contractor's position of being a business in their own account. Now I realise that all of this can seem a bit tricky from business management perspective, but it is because there are so many hurdles and barriers to put in place that money lenders and financial advisors are so popular amongst small businesses.
PI insurance is at the end of the day, an insurance policy. It's main element is that it protects the policy holder's professional indemnity, covering costs should any claims occur from a client due to professional mistakes. This being said, when looking at the policy from a tax and financial perspective, the existence of PI aids professional status, and it is this point that makes it especially relevant in today's business climate. This shows that there is obvious risks to the policy holder's profession and, most importantly from an IR35 perspective, shows that they are operating as a contractor.
by: Chris Carvill
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