Unlike an employee, who will be covered on their employer’s policies, as a limited company contractor you will need to buy various types of insurance. Few of these are actually legal requirements, but some will be expected by clients, who may refuse to do business with your company unless you hold them, while others are simply a good idea to protect yourself against the unexpected.
Professional Indemnity Insurance.
Most clients or agencies will insist on your company having adequate professional liability cover as a condition of doing business. This insurance covers the cost of making good on damage done by your company or its employees to the client’s infrastructure, systems or reputation, accidentally or through negligence. Typically you would be expected to hold a premium covering at least £1 million. PI insurance is often bundled in with other types of business insurance (Public Liability and Employer’s Liability) or available at a discount if purchased together with them.
Public Liability Insurance
This is not a legal requirement, but again some clients will insist on it in order to meet their definition of your company being “adequately insured”. Public Liability insurance covers your company in the event of damage or injury to a member of the public caused by the actions or negligence of your company or its employees. Cover will typically be for a maximum of £1 million per claim. PL insurance is often bundled in with other types of business insurance (Professional Indemnity and Employer’s Liability) or available at a discount if purchased together with them.
Employer’s Liability Insurance
If your limited company employs anybody other than you there is a requirement to hold employer’s liability insurance covering a minimum of £5 million of damages in the event of employees’ suffering injury or death in the course of their duties. This applies even if the employee is your spouse.
If you are the sole employee of the company (and hold a minimum of 50% of the shares) the company is exempt from this requirement however you may find that it is bundled in with other types of business insurance (Professional Indemnity and Employer’s Liability) or available at a discount if purchased together with them.
While you will take every care to comply with the requirements of IR35, it is possible for HMRC to challenge your status. This can incur costs even if your status determination was correct, since you would probably want to engage a professional advisor. In the event that you are found to have made an incorrect IR35 determination you could be liable to pay additional tax and National Insurance contributions, along with penalties and interest. IR35 cover insures against these costs.