Accountant's
exposure to Professional Indemnity claims
An
estimated 300,000 contractors are affected by IR35 in industries
such as IT, telecommunications, oil, gas and engineering. In these
industries there is virtually no established employment status case
law making application of the case law a difficult task. In addition,
the Inland Revenue has not been very helpful in providing useful
and impartial guidance.
At
a recent meeting of the Tax Faculty over two-thirds of those present
indicated that they had assisted contractor clients who were changing
their contracts in order to avoid IR35. Also discussed was the effect
of IR35 on the accountant's Professional Indemnity insurance. If
an accountant has incorrectly assisted a contractor in changing
their contract to avoid IR35 and the IR investigate and determine
that IR35 will apply then the contractor may well take action against
the accountant. This would also depend on the relevant tax protection
policy.
On
the other hand many contractors can legitimately operate outside
IR35 if they receive the right contractual and business advice.
If an accountant advised a contractor to pay the additional tax
and NI and subsequent legal advice indicated the contractor was
not caught by the legislation then the contractor may seek compensation
from the accountant for the overpayment of taxes.
Although
we are not experts when it comes to accountant's PI policies it
would appear that such policies should explicitly include or exclude
the legal determining of the application of IR35. The decision
regarding the application of IR35 is best undertaken by those
with a thorough understanding of the relevant industry, the employment
status case law and experience in drafting and interpreting contracts.
We are presently working with a number of accounting firms to
ensure their contractor clients receive the best legal advice
and possible PI claims are avoided. Please feel free to contact
us if you would like further information about how we can
work together with your firm.
