Accountant's
exposure to Professional Indemnity claims
There
is no employment status case law in many of the areas of specialisation
of the estimated 300,000 contractors effected by IR35 such as IT,
telecommunications, oil, gas and engineering. The Inland Revenue
has not been very helpful in interpreting the case law for application
to these sectors. The IR has however indicated that non-compliance
will attract maximum 100% penalties plus interest in addition to
an average tax and NI bill of around £15,000.
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 by no means 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.
