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A detailed breakdown of the top 4 business insurances for contractors to protect their limited companies
Whether this is your first business venture or you have been contracting for many years, running your own limited company is not without its risks. Ensuring that you have adequate insurance policies in place to protect your business is an invaluable lifeline when it comes to risk management, minimising the potential for future damages and loss. As well as this protection, the majority of contractual agreements will include a stipulation for business insurances, ensuring your client and/or agency is protected against losses.
With all the different kinds of insurance out there for contractors, like independent consultant liability insurance, contractor liability insurance and contractors risk insurance, it’s hard to know where to start. Let’s take a look at the top 4 insurance policies for contractors.
The top 4 insurances for contractors
1 Professional Indemnity
Professional Indemnity insurance provides you with cover should a third party seek to claim against your limited company. Such a claim could be for financial loss as a result of an error or omission in the services you provide.
Who is it useful for?
In short, any professional providing services to a third-party should consider opting for Professional Indemnity cover, but this is particularly prevalent for those whose advice or services, if incorrect or inadequate, may lead to a third party incurring a financial loss. Professionals can opt for contractor liability insurance or contractors risk insurance under professional indemnity.
Whilst Professional Indemnity is not usually a legal requirement, it is not uncommon for contractors to find it stipulated in their contract that they hold adequate levels of cover in place. It is also specifically required in some professions, such as accountants, financial advisers, and solicitors.
If it is stipulated within your contract that you should hold a certain level of Professional Indemnity, you could be in breach of your contract by not keeping the correct levels of insurance in place.
What does it cover?
Professional Indemnity Insurance can react in a range of instances, such as:
- Professional negligence.
- Loss of documents or data.
- Libel and slander.
- Unintentional breach of confidentiality.
- Intellectual property infringement.
Professional Indemnity provides a contractor with cover for the necessary defence costs as well as the liability found owing as a result of the claim (up to the limit of indemnity).
For more information about Professional Indemnity, please read our article here.
2 Public Liability
Public Liability Insurance provides cover in the event a third party seeks to claim against your limited company. Such a claim could be as a result of illness/physical injury or damage to property caused through the provision of your services.
Who is it useful for?
PL insurance is a policy that is useful in a range of professions and is particularly used by self-employed contractors, sole traders, and partnerships.
It is a particularly vital policy for those fulfilling manual roles such as construction contractors or electricians. This is due to the higher risk nature of these roles and the increased likelihood of a Public Liability claim.
However, it is not only manual contractors that should consider PL. In fact, many contractors may find Public Liability insurance a necessary safety net. Especially those interacting with the public, clients, or attending client sites.
PL insurance is not usually a legal requirement but is another form of insurance that we tend to see set out with specified limits within contracts. Contractors can opt for independent consultant liability insurance as well.
What does it cover?
PL covers the costs for defending a claim brought against you in the event of illness/physical injury to a third party or the damage of third-party property. It will also cover the damages for which you are legally liable, up to the limit of indemnity.
3 Employers Liability
Employer’s Liability will react in the event of a claim being raised against your limited company in relation to the injury, illness, or accidental death of an employee.
Who is it useful for?
Those who employ one or more workers may be legally required to hold Employers Liability whether the employees are fee earners, clerical, or otherwise. Whilst it is not a legal requirement for sole traders employing only close family members to hold EL, this exemption does not apply to limited companies or partnerships. Contractor/employer liability insurance is a must to cover legal liability, damages, etc.
If in doubt as to your legal requirements, you should consult your insurance advisor. In addition, you should also review the requirements specified within your contract. Often, it will be stipulated that you must carry both Public and Employers Liability regardless of whether you have any employees or not.
What does it cover?
EL is designed to allow limited company contractors to meet their obligations as employers.
As such, it covers the following:
- Defence costs.
- Payment of damages owed where necessary up to the limit of indemnity.
4 Tax Insurance
Whilst the Off-Payroll reforms introduced into the private sector in April 2021 make the End Hirer responsible for the IR35 status of contractors, the threat of an enquiry into a contractor’s pre-reform IR35 position remains. Not only does an IR35 investigation by HMRC bring with it the high cost that a possibly lengthy case could expose you to, but also the potentially staggering tax and NIC liabilities and interest that could mount up should you be found non-compliant.
General HMRC enquiries are also an ever-present risk for all businesses.
There are two main forms of tax insurance provided by industry-leading IR35 experts, Qdos. Let’s take a look at what these entail.
Tax Enquiry Insurance:
TEI provides protection from the threat of HMRC investigation. It covers a range of HMRC enquiries, including PAYE compliance reviews, VAT disputes, and IR35 enquiries. This cover ensures that you have an experienced tax expert supporting you from day one.
Covering all previous tax years, TEI will protect against the cost of representation in the event of an enquiry, all the way to commissioners’ hearing/tax tribunal if necessary.
Tax Liability Cover (TLC35):
TLC35 provides the next level of support for contractors seeking IR35 protection. It includes everything that is part of the TEI cover as well as the tax, interest, and penalties owed following an IR35 enquiry.
Previous tax years are also covered as standard, subject to application criteria being met.
Where can I buy contractor insurances?
Contractor Advice UK has a longstanding relationship with award-winning contractor insurance specialists and leading IR35 experts, Qdos Contractor. All of the above insurances are available through Qdos with instant quotes and immediate cover. Qdos have helped to protect an industry of flexible workers with over 90,000 independent professionals insured and an estimated tax saving of over £35m on behalf of contractors.
There is now a 10% discount available on business insurance for contractors. This discount is available for all Contractor Advice UK members and visitors. Please use Code CAUK10 when entering your details at the payment stage to receive your 10% discount on business insurance for contractors.
Take a look at the Contractor Advice UK group on LinkedIn for regular updates: https://www.linkedin.com/groups/4660081/
Other financial products for contractors worth looking into are:
Frequently Asked Questions
Head of Insurance
Insurance Specialist at Qdos Contractor
Elliot Fox is the Head of Insurance for leading contractor insurance specialists, Qdos Contractor. He is a Chartered Insurer and has worked with Qdos for over 10 years leading the development of insurance policies tailored to the risks faced by UK limited company contractors.
