What is IR35 Insurance?

IR35 insurance, also known as IR35 tax investigation insurance or contractor protection insurance, is a specialist policy designed to protect UK contractors against the financial risks associated with HMRC IR35 investigations and determinations.

This type of insurance became increasingly important after the off-payroll working rules (IR35) were extended to the private sector in April 2021, creating additional compliance risks for contractors.

What Does IR35 Insurance Cover?

IR35 insurance policies typically provide coverage for several key areas:

1. Investigation Costs

• Professional fees for accountants and tax advisors
• Legal representation costs
• Specialist IR35 consultant fees
• Administrative costs during investigations

2. Financial Liabilities

• Back taxes and National Insurance contributions
• Interest charges on overdue payments
• HMRC penalties (in some policies)
• Additional tax liabilities from status changes

3. Business Interruption

• Loss of earnings during investigations
• Costs of temporary contract suspension
• Expenses for finding alternative work

IR35 Insurance Costs in 2025

The cost of IR35 insurance varies significantly based on several factors:

Factors Affecting IR35 Insurance Costs

• Income Level: Higher day rates = higher premiums
• Contract Type: Outside IR35 contracts often cost more to insure
• Coverage Level: £100k vs £1m coverage significantly affects price
• Claims History: Previous claims can increase premiums
• Business Structure: Limited company vs sole trader considerations

Is IR35 Insurance Worth It?

Whether IR35 insurance is worth the cost depends on your specific circumstances:

When IR35 Insurance is Highly Recommended

• Working outside IR35 with day rates above £400
• Operating through your own limited company
• Working in high-risk sectors (IT, finance, construction)
• Multiple concurrent contracts or complex arrangements
• Limited financial reserves to handle investigation costs

When IR35 Insurance May Not Be Essential

• Working inside IR35 through umbrella companies
• Low day rate contractors with simple arrangements
• Contractors with substantial savings for potential investigations
• Those with existing professional indemnity insurance covering IR35

Types of IR35 Insurance Policies

1. Basic IR35 Coverage

• Investigation costs up to £25,000-£50,000
• Basic legal and professional fees
• Suitable for lower-risk contractors
• Premium: £200-400 annually

2. Comprehensive IR35 Insurance

• Investigation costs up to £100,000-£250,000
• Back tax liability coverage
• Loss of earnings protection
• Premium: £400-800 annually

3. Premium IR35 Protection

• Coverage up to £500,000-£1,000,000
• Comprehensive back tax coverage
• Business interruption insurance
• Premium: £800-1,500 annually

Major IR35 Insurance Providers

Several specialist insurers offer IR35 coverage in the UK market:

Leading Providers

• Qdos: Specialist contractor insurance with comprehensive IR35 coverage
• Kinsella: Focus on tax investigation insurance including IR35
• Hiscox: Professional indemnity with IR35 add-ons
• ClearView: Contractor-focused insurance packages
• Lawshield: Legal expense insurance covering IR35 investigations

What to Look for in IR35 Insurance

When comparing IR35 insurance policies, consider these key factors:

Essential Policy Features

• Coverage Limits: Ensure adequate limits for your risk exposure
• Retroactive Date: Coverage for past contract periods
• Legal Costs: Unlimited or high limits for professional fees
• Penalty Coverage: Whether HMRC penalties are included
• Claims Process: How quickly claims are processed and paid

Policy Exclusions to Watch

• Deliberate non-compliance with IR35 rules
• Criminal proceedings or fraud allegations
• Contracts known to be inside IR35 at inception
• Pre-existing investigations or disputes

IR35 Insurance vs Other Protection

Professional Indemnity Insurance

Some professional indemnity policies include IR35 coverage, but this is often limited. Dedicated IR35 insurance typically provides better coverage and higher limits.

Legal Expense Insurance

General legal expense insurance may cover some aspects of IR35 investigations but usually lacks the specialist knowledge and coverage limits needed for complex cases.

How to Make a Claim

If you receive an IR35-related enquiry from HMRC:

1. Don't Panic: IR35 investigations are common and manageable
2. Contact Your Insurer: Notify them immediately, even for informal enquiries
3. Don't Respond Alone: Let your insurer arrange professional representation
4. Keep Records: Document all communications and costs
5. Follow Advice: Work with appointed specialists throughout the process

Frequently Asked Questions

Can I get IR35 insurance if I'm already under investigation?

No, you cannot obtain IR35 insurance to cover an existing investigation. Policies only cover future investigations that arise after the policy start date.

Does IR35 insurance cover umbrella company arrangements?

Most IR35 insurance is designed for contractors operating through their own limited companies. If you work through an umbrella company, you're typically inside IR35 and have less need for this insurance.

Is IR35 insurance tax deductible?

Yes, IR35 insurance premiums are typically allowable as a business expense if you operate through a limited company or as a legitimate business expense for sole traders.

How long do IR35 investigations typically last?

IR35 investigations can last anywhere from 6 months to several years, depending on complexity. Simple cases may resolve quickly, while disputed determinations can extend significantly.