Limited Company Insurance
Navigating the intricate landscape of self-employment is no easy feat, especially for contractors. Amidst the myriad of regulations, one term stands out prominently: Limited Companies. But how does limited company insurance work?
As a contractor, you want to work stress-free, knowing that you’re covered should something go wrong. To do so, you’ll need to have the correct insurance in place. But what is the right insurance? What do you need to ensure peace of mind?
In this comprehensive guide, we delve deep into the heart of limited companies. Whether you’re an aspiring contractor or a seasoned veteran seeking clarity, this guide aims to empower you with the knowledge to make informed decisions.
What Insurance Do UK Contractors Need?
The necessary limited company insurance policies vary depending on your industry. However, few individual insurance policies are legally required.
Employer’s liability insurance is the only mandatory business insurance, and even then, it only applies to those companies with employees. If you are operating as a sole director/employee (as most contractors do), then the policy is unnecessary.
If your industry carries a level of risk, some regulatory bodies may stipulate the need for a particular type of insurance policy, such as professional indemnity cover.
Although not legally required, most Outside IR35 contracts usually stipulate a certain level of professional indemnity insurance that the contractor’s limited company must hold. Without this cover in place, you will not be able to start the contract.
Most contractors also take out additional insurance to give them peace of mind. Contracting is hard enough without worrying about significant financial repercussions against your limited company should a mistake be made.
Furthermore, many of the policies available are allowable expenses, allowing you to put the cost through your limited company and reduce your corporation tax liability.
Professional Indemnity Insurance
Professional indemnity insurance protects against circumstances where a mistake in your services causes a third party a financial loss. It is the most common limited company insurance, and one most contractors choose to take out. It covers situations such as:
- Negligence or breach of duty;
- Infringement of intellectual property rights;
- Sharing confidential information without permission;
- Defamation; and
- Mistakes made by sub-contractors and outsourcers.
Policies tend to cover legal defence costs and any liability up to the indemnity limit.
As mentioned above, although not a legal requirement, almost all Outside IR35 contracts will stipulate a certain level of professional indemnity insurance required before the contract can begin. Costs start from around £150 per year and are an allowable business expense.
Public Liability Insurance
Public liability insurance covers you for the defence costs and associated liability arising from situations where you have caused injury or property damage to a third party while providing your services.
The third-party in question does not have to be your client; they can be a member of the general public who has allegedly suffered a loss due to your actions.
Public liability insurance is uncommon amongst limited company contractors operating the professional services or IT fields. It is more common for contractors working outdoors, like tradespeople and landscapers. Costs start from around £60 per year and are an allowable business expense.
Employer’s Liability Insurance
Employer’s liability insurance covers you in the event of a compensation claim by an employee where they have suffered injury, illness or accidental death due to their employment. It is legally required if you have employees and unnecessary if you do not.
For contractors, if you are the director of your limited company, are the sole employee and own more than 50% of the shares, you are exempt. Costs start from around £60 per year and are an allowable business expense.
Jury Service Protection
Jury service is a policy designed specifically for limited company contractors. If you’re called to jury service, you won’t be able to work and earn money. This policy will provide a fixed amount per day (based on the value of your contract at the time) to make up for this loss of earnings.
Costs start from around £40 per year and are an allowable business expense.
Tax Investigation (including IR35) Insurance
If HMRC opens an enquiry into your finances or accounts, tax investigation policies will protect you. Depending on the level of cover, it will respond to a broad range of investigations, be they PAYE compliance review, VAT dispute, IR35 enquiry or others.
Policies usually cover the costs of an investigation (including hiring a legal representative to defend you in court) and any liabilities and penalties should ‘wrongdoing’ be discovered. After professional indemnity insurance, tax investigation cover is one of the most popular policies with limited company contractors due to the peace of mind it provides.
Costs start from around £200 per year; however, whether the expense is allowable can be confusing. According to HMRC, tax investigation insurance is only allowable if it doesn’t cover any additional liabilities owed should an investigation go against the contractor, and the contractor wins any investigation.
This means that if the policy covers any tax, interest or penalties arising from the loss of a case, or HMRC’s investigation finds wrongdoing, the policy is not allowable as a business expense.
Sickness Cover
Sickness cover protects you if an accident or illness prevents you from working. It provides a weekly or monthly payment for a set period, the amount of which is dictated by your contract rate.
Costs start from around £300 per year and are an allowable business expense.
Contractors’ All Risk Insurance
Contractor’s all risk insurance is designed for tradespeople and subcontractors, protecting your business against loss or property damage which is being used, or intended for use, in connection with your work on a construction site.
It is not relevant for those who do not work on construction sites. Costs start from around £100 per year and are an allowable business expense.
Personal Accident
Personal accident insurance provides a lump sum payment if you suffer an injury because of an accident in the workplace. It is not very common for those who work ‘desk jobs’; it is common for those who work with an element of danger, such as engineers who work off-shore,
Costs start from around £60 per year and are an allowable business expense.
Life Insurance
Life insurance provides your dependents with a lump-sum payment based on a multiple of your income in the event of your untimely death. It provides for your family and helps pay off any outstanding debts, such as the mortgage.
It surprises many contractors, but life cover can be put as an allowable expense through your limited company so long as you take an earning form the company (salary or dividend). Costs start from around £150 per year and are an allowable business expense.
Medical and Dental Insurance
Private medical or dental insurance covers the costs of private healthcare and dental work, from diagnosis to treatment. Medical and dental insurance are not allowable as limited company expenses. If they put through your limited company, they will count as a benefit in kind, and you will incur additional tax liabilities.
Insurance Providers
Most large insurance providers will provide policies catering for the freelance workforce; however, you may be best going through a contractor specialist such as Qdos or Kingsbridge.