Contracting Insurance: Which Type is Right for You?
Did you know that having contractor insurance can show that you’re operating outside of IR35? Being inside IR35 is expensive for contractors as it’s viewed as disguised employment. While contractors’ insurance doesn’t instantly make you IR35 compliant, it can show that you’re working independently with appropriate insurance coverage for any issues that could be brought against you directly, rather than a client you’re servicing.
There are different types of contractor insurance policies, some of which you’ll need and others that are optional but could still prove to be beneficial.
Exploring Your Options for Contractor Insurance
Public Liability Insurance
In insurance-speak, public doesn’t just represent people passing you on the street or your premises. If you’re working on client sites, public can refer to everyone working around your workspace. For IT contractors, you could be on-site performing a server-installation, leave your work area untidy or cables trailing without putting hazard signs up and find someone takes a trip. The cost of an accident in a workplace can have repercussions on your clients. Especially if their employee decides to file for damages due to lost income. If this were to happen, there is a risk your client could need to make a claim against your insurance to cover their financial losses, such as having to pay sick pay or worse if damages are involved.
If you don’t have insurance in place, you’d have no way to cover the costs without incurring a severe financial hit. That’s the purpose of having this type of insurance.
Professional Indemnity Insurance
This is going to be needed for anyone acting in an advisory capacity such as business analysts, systems analysts and advisors of all types working with businesses. This type of insurance covers you for professional negligence. No matter how expert you feel you are, if you ever give bad advice that costs a business financial damage, they could make a claim for professional negligence. Whether you did or didn’t would be a matter for courts to decide.
Professional indemnity insurance covers you for claims made and provides financial assistance for legal fees and depending on your insurer; it can also include other expert fees such as getting an independent specialist to contribute their expert opinion in your defence.
Employer’s Liability Insurance
While you’re working as an independent contractor, you don’t need this. Before you hire someone as an employee, it is a mandatory requirement to have this type of insurance in place. For gas contractors and other trades that may benefit from hiring a labourer or an assistant, you’ll find it helpful to speak with your accountant about how to go about hiring help cost-efficiently and in a way that gives you maximum financial protection.
It is possible to hire help from someone self-employed, but when that’s the case, your hired help could find themselves inside IR35 if they were to be set up as self-employed but only working with you full-time and doing nothing else associated with running a business.
IR35 Tax Enquiry Insurance
For contractors who feel they’re in a grey area of IR35, a tax enquiry insurance policy could be handy to have in case HMRC do start an investigation as things can get pricey.
All contractor insurance expenses are tax-deductible as there’s no personal benefit to you. The only financial benefit is the interests of your business.
Besides contractor insurance being beneficial for financial protection, having the right type of policies can actually increase your workload as some clients will only bring on contractors who are fully insured. It can be part of their business insurance requirements so if you’re in the B2B space, definitely pay attention to the request for proposal businesses put out as those will specify the insurance requirements for contractors to be eligible to have their proposals considered.