Contractors sit in HMRC’s most active enquiry territory: employment status and the off-payroll (IR35) rules, expenses, and the long tail of marketed avoidance schemes that targeted contractors for years. Tax investigation insurance covers the professional fees of defending those enquiries, which for a status dispute regularly run into thousands of pounds even when the contractor wins.
Why contractors get checked more than most
A limited company contractor combines several things HMRC risk profiles look for: fee income that could be reclassified as employment income under the IR35 and off-payroll rules, expense claims against that income, dividend and salary mixes, and, historically, heavy targeting by promoters of avoidance schemes such as loan arrangements. Any one of those can trigger an enquiry; a status enquiry is the most expensive kind to defend because it turns on evidence about how you actually work, contract by contract.
What does an IR35 or status enquiry cost to defend?
The dispute is rarely settled in one letter. It typically involves reviewing contracts and working practices, correspondence with HMRC, and sometimes a formal status determination challenge. All of that is professional time from your accountant or a status specialist, billed whether or not HMRC ultimately gets a penny. That fee risk, not the underlying tax, is what the insurance removes.
What does tax investigation insurance cover for a contractor?
Fee protection policies cover the accountancy fees of responding to HMRC interventions: enquiries into the company or personal return, employment status and IR35 disputes, VAT and PAYE compliance checks. What a policy covers for avoidance scheme fallout or fraud procedures varies significantly between insurers, so if you have historic scheme use, check the wording before you rely on it.
I already pay my accountant. Why is this not included?
An annual accounts and tax return fee prices the compliance work, not the open-ended cost of defending an enquiry. Most practices either run a fee protection scheme their clients can join or can arrange standalone cover. See who pays the accountant when HMRC comes calling for how this falls without insurance.
Does insurance make an enquiry go away faster?
Indirectly, often yes. When fees are covered, the adviser can answer fully and push back properly from the first letter instead of rationing their time, and a well-handled opening usually shortens the whole process. What insurance never does is change the tax outcome: if tax is due, it is due. The policy pays for the defence, not the liability.
Getting covered
Solar Protect arranges tax investigation insurance through accountancy practices; if your accountant runs one of our schemes you can usually join through them, and practices can set one up via our accountants’ scheme page. Sole trader rather than limited company? See tax investigation insurance for sole traders, or get a quote.