Essential insurance products for limited company contractors

Limited company contracting is considered by many to be a highly rewarding career move. You enjoy both the freedom and the opportunity to fully capitalise your earning potential, and you no longer have to report to the boss.

However, there are risks to being the director of a limited company, and it is important that those risks are addressed. Here we share the key insurance products that you will need to stay fully protected.

Professional indemnity insurance

Limited company contracting means your company assumes liability in the event of a perceived error. As you are the director and shareholder of the company, the client may well target you personally for damages.

It won’t pay to simply back your own ability to avoid costly mistakes. You’ll find that the large majority of clients and agencies will require you to have Professional Indemnity (PI) cover before entering a contract with you. 

That being the case, PI insurance is an absolute necessity. It is also readily affordable. Policy prices depend on factors such as annual turnover, experience and track record. 

Business insurance

This is an umbrella term used to describe a set of insurance products designed to protect your limited company. The most important are:

• Public liability insurance: protects your company against claims made by third parties – this is another form of cover that is a necessity for most clients

• Employers’ liability insurance: required by law should your company hire anybody as an employee, including yourself and your spouse or partner

• Business equipment insurance: covers damage to or loss of business assets, including computers and other office equipment – these won’t be covered in your household insurance policy

• Business interruption: provides compensation for loss of earnings in the event of a disaster which prevents you from working temporarily, such as a flood or fire.

There are further options available, and many insurance providers allow you to build your own insurance package, depending on exactly what you think you do and do not need.

Income protection insurances

Choosing to go contracting means losing the safety net that your employer would have provided in the event of an accident or serious illness that put you out of work. Whereas most employees are entitled to three months’ paid leave in such an instance, as a contractor you have to make your own provisions.

Income protection insurance compensates you should you be unable to work through illness or injury, providing you have been signed off work by a doctor.

Agreeing an income protection policy is more complicated than other forms of cover. You will want to work out the level of replacement income you need and how much that will cost. It is wise to consult a financial adviser professional to work out the fine detail that is particular to your circumstances.

Tax investigation insurance

Tax investigation insurance isn’t a legal requirement, but it is considered a necessity. In addition to monitoring compliance with PAYE and VAT, HMRC is consistently on the lookout for signs of non-compliance with IR35, partly due to its false perception that many contractors incorporate as a means of tax avoidance.

HMRC is quick to pounce on any indication of non-compliance with IR35, which is why it’s critical that you have protections in place. Even if you are sure that you are legitimately outside of IR35, legal fees when mounting an IR35 defence can be extremely costly.

Complete tax investigation protection is typically composed of two insurance offerings:

• Tax investigation cover: covers professional advisers’ fees should HMRC investigate your tax affairs

• Tax liability cover: covers the cost of your tax settlement in the event that HMRC successfully challenges your IR35 status.

In addition to providing specialist contract reviews to assess IR35 risk, at HillierHopkins we provide a tax investigation service with a proven track record for protecting our clients from HMRC’s advances. 

The £190 (exc. VAT) annual fee paid covers our fees in the event of an HMRC investigation, which should be all you need considering that we have a 100% success record when defending our clients. For more information about our tax protection offerings, get in touch with a member of the team.

Life insurance

Finally, it’s important to bear in mind that no longer being an employee means you lose benefits such as ‘death-in-service’. A typical life insurance policy will cover any outstanding mortgage that you might have, ensuring that debt is not passed onto your family in the event of a tragedy. The remaining sum should provide them with long-term security. Whilst we hope that you never have to use it, life insurance is an essential purchase.
 


Speak to one of our experts today about how to protect yourself from the costs of an investigation before it’s too late. Call +44 (0) 024 3200.

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Hillier Hopkins is a trading name of Hillier Hopkins LLP, which is registered as a Limited Liability Partnership in England & Wales, No. OC303707. Registered Office: Radius House, 51 Clarendon Road, Watford, Herts WD17 1HP. Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England & Wales. A list of members of the LLP is available at the above address. HH and Hi logos are trade marks belonging to Hillier Hopkins LLP. © Hillier Hopkins LLP.