From Minor Distractions to Massive Disruptions
For IT Contractors, being forced to take a day away from focusing on a project can be costly. It’s almost a double-punch. You’ve lost time dealing with an issue which you didn’t cause, it then prevented you from generating revenue and then all too often, once things are resolved you’ll probably be left uncompensated. For a minor distraction, maybe the impact is minimal and so you can get back on track with a couple of longer days or having to sacrifice the weekend.
But what about the type of interruptions that cause massive disruption? What if they hampered your ability to earn for months instead of days? Worse still, what about the more catastrophic scenarios that could last years?
Here we look at the 3 costliest interruptions IT contractors are most likely to face together with some sage advice on how best to avoid them.
1. IR35 Investigation
Self-employed IT contractors in the United Kingdom, are probably already well aware of the complexities of IR35 (also known as “off-payroll working rules”).
Designed to crack down on so-called “disguised employees”, IR35 applies to contractors who work for clients through intermediaries, such as a limited company owned by the contractor.
With recent changes in April 2021, most IT contractors have likely already made checks to ensure that any ongoing agreement between their limited company and a client is not “inside” of IR35. Being “inside” of IR35 means that the contractor is classed as an employee for tax purposes with HMRC. However, what many IT contractors have not bargained for, is the potentially time-hungry, expensive and highly stressful experience of the IR35 investigation process itself.
With HMRC having the power to look back up to 6 years if they deem that there has been any “carelessness”, the proceedings can be prolonged and sometimes last many months or even years. Contractors who have had the misfortune of being investigated describe the process as “relentless” and an expensive distraction.
How to mitigate the impact of an IR35 investigation
Whilst there is no guaranteed way to avoid an IR35 investigation entirely and many are believed to be issues completely at random every year, it pays for IT contractors to have made adequate provisions in case HMRC decides to nose in to your affairs. Perhaps one of the best ways this can be done is for IT contractors to take out an IR35 insurance policy.
What is IR35 Insurance and how much does it cost?
There are essentially two levels of IR35 insurance cover:
A Tax Enquiry Insurance Policy will cover the cost of expert representation from start to finish, if you are subject to a HMRC tax investigation. Qdos Contractor, the UK’s leading authority on IR35 investigations, offer a policy that starts at just £99 per annum and covers up to £50k of defence costs. It also includes an assessment of one contract to determine that the contract is “outside” of IR35.
Qdos Contractor also offers Tax Liability Cover which provides far more comprehensive protection. Should you be subject to an investigation and subsequently found to owe HMRC, the policy will cover your liabilities. This policy starts from £199 per annum for £25k of liabilities.
For more information on IR35 assessment services and insurance policies please see www.qdoscontractor.com
2. Cyber Incidents
In both 2022 and 2023, the Allianz Risk Barometer, an annual survey of the top risks faced by global businesses, identified Cyber Incidents as the number 1 risk. Given the many varied causes of business interruption that the international economy has faced in recent years, this is testament to the seriousness and long-lasting financial impacts that even a modest cyber attack can have.
But, it’s not just global businesses for whom this is the greatest risk. As companies become more and more reliant on services outside of their organisation’s internal infrastructure, businesses of any size are becoming increasingly vulnerable to cyber attacks.
As IT Contractors are often required to handle sensitive data or access confidential information from external locations, they are becoming far higher priority targets for cyber criminals. IT Contractors should therefore take much greater precaution to ensure that their systems are well-protected from potential malicious attacks.
Ecliptic Dynamics is a UK cyber security company specialising in high security web isolation services. We asked their CEO Tom Kidwell, how IT Contractors can mitigate the risk of a downtime caused by a cyber incident. Here’s what he had to say;
Segregate personal and business devices: Use entirely separate devices and communications apps or at least separate accounts to avoid cross contamination. This can help ensure you have stricter processes regarding app installation, browsing habits, password/local encryption policies and local antivirus/anti malware mitigations on your business devices. Do not allow other people (even family members) to use your business devices.
Keep all project documents in siloed encrypted folders with strong authentication: Separate and silo folders for each project. Implement strong encryption and multi-factor authentication on this storage where possible. If using cloud storage, then consider only syncing data to a local device when absolutely necessary for offline access, ensuring the local machine is adequately protected in the event of loss/theft.
Avoid storing client data: Any personal data with GDPR implications or any sensitive corporate information that is being handled as part of a project should only ever be stored within the client’s own file storage solution.
Credentials: Push for least privilege access. Sometimes clients, especially smaller organisations, may inadvertently provide a contractor with “the keys to the kingdom” to ensure they are able to complete the project with minimal disruption. If systems are being implemented, avoid weak credentials or temporary “test” system accounts even in beta and POC stages. Always ensure your credentials are expired or reset when projects are complete.
Communications: Avoid sending project documents or sensitive information via unencrypted channels (e.g. email) – try to share content from encrypted files shares and ensure access is restricted to intended recipients only.
3. Illness and Injury
Being a contractor has many advantages. However, the lack of employee benefits such as sick pay is one that shouldn’t be overlooked regardless of your age, status, number of dependents or your monthly outgoings.
Even a relatively simple (albeit none the less painful) injury such as a broken arm or wrist could easily see you unable to work for 3 months. Whilst you may be able to survive from savings for this amount of time, what if you were to suffer a longer term injury?
Worse still, there are countless life-changing events that could see you unable to work for much longer periods or even potentially career ending. As a contractor, you are the most precious and crucial resource that your business has. Without you there is simply no business. A longer-term illness or career ending injury therefore is more than just a costly interruption to your business, it’s a potential death-blow.
Of course, for many people, certainly those more youthful, the immediate thought is “that will never happen to me.” Well, consider that between June and August 2022, the number of working-age UK adults who were out of work due to long-term sickness rose to a staggering 2.5 million people. That figure is up by approximately half a million since 2019.
With statuary sick pay just £99.35 per week and paid for a maximum of just 28 weeks, operating as any type of self-employed contractor without any form of protection is a risky move.
Fortunately, to mitigate the risks of such unfortunate scenarios, IT Contractors can consider Accident & Sickness Insurance or a more comprehensive Income Protection Policy.
What’s The Difference Between Accident & Sickness and Income Protection?
Both policies will pay out a monthly amount of up to 70% of your gross earnings upon a valid claim until you are well enough to return to work.
Accident & Sickness policies tend to have a shorter deferred period but, as the cheaper of the two options, limit the maximum length of any pay-out to 12 or 24 months.
Income Protection provides cover up until either you can return to work, the policy expires or you retire.
Ultimately Accident & Sickness policies are likely only to be more suited to a young IT Contractor without any dependents or mortgage. In the main these policies are more geared towards contractors in industries that require a much higher level of physical involvement than an IT Contractor such as a construction worker. They will start to pay out much sooner.
Given the high demand and salary expectations of many IT Contractors, a more comprehensive Income Protection Policy is far more suitable and could cost in at approximately £50 per month for a 30-year-old non-smoker to cover £75,000 annual earnings.
If you were unfortunate enough to suffer a career ending injury or illness, a policy could pay 70% of your annual earnings (including dividends) until you were of retirement age which equates to £52,500 in year one. Since the figure is index linked it would keep up with inflation and so if inflation ran at 3% the total lifetime payout would be in excess of £3 million. Additionally, the premiums are a legitimate business expense so you could choose to cover yourself through your company.
