IR35 Insurance Guide for UK Contractors

IR35 investigations are expensive, time-consuming, and stressful. Even if you win, you're looking at thousands in accountancy and legal fees. IR35 insurance promises to cover those costs—but does it actually deliver when you need it most? The short answer: it depends on your circumstances, your contracts, and how well you understand what you're actually buying.

What IR35 Insurance Actually Covers

IR35 insurance isn't one product—it's a category with wildly different policies. Some are comprehensive, others are barely worth the paper they're written on. Most IR35 insurance policies cover professional fees if HMRC opens an investigation into your IR35 status. That means your accountant's fees, tax specialist costs, and legal representation. The better policies also cover tribunal costs if your case goes that far.

What they don't typically cover is the tax bill itself if you lose. You're insured against the cost of fighting, not the cost of being wrong.

Cover limits vary enormously. Some policies cap out at £25,000, others go up to £100,000 or more. Investigation costs can easily hit £50,000 if your case drags on, so those lower limits might not see you through to the end.

The Real Cost of an IR35 Investigation

Before you decide whether insurance is worth it, you need to understand what you're protecting yourself against. A full-scale HMRC IR35 investigation typically costs between £15,000 and £75,000 in professional fees. That's before you factor in the tax bill if you lose, which could run into six figures depending on how long you've been contracting and how much you've earned.

The investigation itself can take anywhere from 18 months to three years. During that time, you're paying specialists to review contracts, prepare submissions, gather evidence, and represent you in meetings with HMRC. Most contractors can't absorb those costs without serious financial pain. That's where insurance comes in.

Who Actually Needs IR35 Insurance?

If you're confidently outside IR35—you control how and when you work, you can send substitutes, you're not integrated into the client's organisation, you work for multiple clients—then insurance is less critical. You're unlikely to be investigated, and if you are, your case is relatively straightforward.

If you're borderline, insurance makes more sense. Maybe you work for one client most of the time. Maybe your contracts aren't perfect. Maybe you work on-site regularly under some level of supervision. These grey areas are where HMRC investigations happen.

Contractors inside IR35 don't need this insurance at all—you're already paying tax as an employee, so there's nothing to investigate.

What to Look For in an IR35 Insurance Policy

Not all IR35 insurance policies are created equal. Here's what separates the good from the useless:

Cover limit: Anything under £50,000 is questionable. HMRC investigations aren't cheap, and you don't want your insurance running out halfway through.

Legal expenses: Does it cover barrister fees if you end up at tribunal? Many policies don't, which is a problem because that's when costs really escalate.

Retrospective cover: Some policies only cover investigations into contracts taken out after you bought the insurance. That's useless if HMRC comes after you for work you did two years ago. You want full retrospective cover from day one.

HMRC enquiries vs investigations: There's a difference. An enquiry might just be HMRC asking questions. An investigation is a full compliance check. Make sure your policy covers both.

Your excess: Some policies have a £1,000 excess, others have nothing. Factor this into your cost comparison.

Who chooses your representation: Do you get to choose your own specialist, or does the insurer assign someone? You want control over who's fighting your corner.

The Alternatives to Insurance

Insurance isn't the only way to protect yourself against IR35 risk.

Self-insurance: Put money aside each month into a separate account. If you're paying £500 a year for insurance, that's £1,500 over three years. If you don't get investigated, you've got that money plus interest. If you do, you've got a fighting fund.

The downside? Most contractors don't have the discipline to actually save the money, and if HMRC comes knocking in year one, you're not covered.

Contract review services: Prevention is better than cure. Paying a specialist to review your contracts and working practices before you start a role reduces your investigation risk significantly. It's usually a few hundred pounds per review.

Status determination statements: Under off-payroll working rules, if your client provides an SDS saying you're outside IR35 and you disagree or it's clearly wrong, the liability sits with them, not you. That's free protection, assuming the client's done their homework properly.

When IR35 Insurance Isn't Worth It

If you're paying more than 1% of your annual turnover for IR35 insurance, you're probably overpaying. For a contractor earning £80,000, that's £800 a year maximum.

If your working practices are clearly inside IR35, don't waste money on insurance. You won't be investigated for something you're already paying correctly.

If your contracts are bulletproof and you've had them professionally reviewed, your investigation risk is low. The money might be better spent on annual contract reviews instead.

The Blanket Ban Problem

Here's something insurers don't shout about: if HMRC investigates you and finds you've been clearly inside IR35 for years despite claiming otherwise, some policies won't pay out. They're designed to cover genuine disputes, not blatant tax avoidance.

Read the exclusions carefully. "Reckless or deliberate misrepresentation" is a common one. If you've been ignoring obvious red flags in your contracts, don't expect the insurance to bail you out.

Combining Insurance With Good Practice

Insurance works best as part of a broader IR35 compliance strategy, not as a replacement for one.

Get your contracts reviewed before you sign them. Keep records of how you actually work, not just what the contract says. Document your substitution rights even if you never use them. Keep evidence of multiple clients, even if one provides most of your income.

If you do all that and still get investigated, insurance means you can fight properly without bankrupting yourself. If you ignore all that and rely on insurance alone, you're setting yourself up for disappointment.

Making the Decision

For most contractors working in genuine grey areas, IR35 insurance is worth having. It's not exciting to pay for, but neither is explaining to your family why you're spending £30,000 defending yourself against HMRC.

Shop around. Get quotes from at least three providers. Read the policy documents, not just the marketing material. Ask specific questions about retrospective cover, tribunal costs, and excess payments.

If you're confident in your status, put the money into contract reviews instead. If you're worried, get both. If you're clearly inside IR35, save your money.

The worst thing you can do is nothing. Hoping HMRC won't notice isn't a strategy.