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|Our Head of Tax, Andy Vessey, is widely recognised as one of the UK’s foremost IR35 experts, having personally and successfully defended more than 500 HMRC IR35 investigations. His expertise is accessible for all clients of Larsen Howie.
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|The beauty of contracting is that each end client, contract and project is different from day to day, and a cookie-cutter review doesn't do your contract justice. We approach each contract review as a unique document, so you get tailored recommendations and as accurate an opinion as possible.
Professional indemnity (PI) insurance is the main insurance required by a wide range of roles undertaken by contractors, freelancers and consultants, and is designed to provide cover against claims being against your company in respect of errors and omissions in providing its services. It is extremely rare for a contractor to be able to commence a contract with an end client without being able to prove that they have PI in place, often with a limit of indemnity of £1m. Some contractors are often under the impression that the PI held by the agency that they have sourced the contract through covers them - when in fact it doesn’t, leaving them open to claims and enormously exposed. Therefore, PI is a must for contractors else they risk the opportunity of being able to land that dream contract and ensuring their business is protected.
Anyone who provides advice or similar is now likely to be required to contractually have PI in place, as incorrect advice or an omission can be a very costly error with large ramifications, often financial, leading to claims being made by the end client or a third party. Whilst not a compulsory insurance, most contracts now include the requirement for PI to be held, and as a business can you afford not to hold PI and risk the reputation and livelihood of your company if you get sued, which itself can often just be an allegation.
PI assists your business by protecting it from the financial costs of both legal representation and liabilities associated with negligence such as errors and omissions in the provision of your services, which can often run in to hundreds of thousands of pounds for each, and a legal case can be brought on the allegation of such and not a definitive case of their being an error or omission. By holding PI, you are also providing the end client with the reassurance that you covered in the unlikely event of the worst happening, increasing the possibility of you landing the contract as a result.
As a business, taking out PI enhances your IR35 position in that it acts as a clear indicator that you are a genuine business as you are open to the possibility of being sued and having to rectify an error or omission at your own cost, whereas an employee would find their employer covering the costs for such an incident. HMRC consider a number of factors with a status enquiry, one of which is are in business on your own account – holding PI assists in demonstrating that you are.
Typically, a £1m (£1,000,000) limit of indemnity is required, with other common limits being £2m and £5m. Limits do range from £50,000 up to £5,000,000, but ultimately it is up to the contractual requirement placed upon your business and the maximum financial loss your client could suffer due to a mistake you make. If the level of cover taken out is not sufficient for your requirements then you will be liable for the remaining amount, which can be significant. More often than not the agency will specify the limit of indemnity required, and with premiums starting at £144.44 (inclusive of Insurance Premium Tax) the cost pales into insignificance given the protection provided.
This covers your work on previous contracts, providing you are not aware of any issues with your work that could lead to a claim being made against you and that uninterrupted cover has been in place up to this point. Often contractors have swapped insurance providers, and by extending the cover to include this provides them with total peace of mind. Retroactive cover is available for all our trades, where it can be purchased for an additional premium at the point of sale.
This is a common mistake made by many contractors. By cancelling the insurance when the contract ends, say maybe in the knowledge that you are taking a well-earned months holiday before taking up the next contract, you risk putting your company in the position of being uninsured at the point a claim is made. A PI insurance policy is what is known as a ‘claims made’ policy, meaning that it pays out for a claim made during the policy period, meaning you need to have the insurance in place when you receive notification of the claim being made against you - cancelling the policy early puts you at risk of being uninsured when a claim is made.
If you are working in the very similar roles the you should be ok with the one policy, but you will need to check the policy documents and with your broker to ensure this is the case, different roles can result in different polices being issues and a different price being charged. Our policies do provide for this providing you are doing the same job role, but always check with us to ensure you are definitely covered.
This is the same as the above question, if you are working in the very similar roles the you should be ok, but you will need to check the policy documents and with your broker to ensure this is the case, different roles can result in different polices being issues and a different price being charged, so always check with your broker. Again, our policies do provide for this providing you are doing the same job role, but always check with us to ensure you are definitely covered.
This depends on the policy taken out, some providers of PI insurance include it as standard, others do not. You need to check with your broker that this is the case and insure yourself accordingly. We provide this cover as standard with all our PI policies.
Unfortunately not. Most PI insurances provide cover for on a worldwide basis but excluding North America, with North America including the USA, Canada and Mexico. If you take up a contract with an end client operating in North America, then you will need to ensure you have a PI insurance policy that specifically extends to that region or take out a separate policy specific to that region. Our policies do not cover Canada and North America.
Examples of what PI insurance can cover includes:
- As a software programmers coding results in unexpected downtime on the main system, taking it wholly offline and with a large financial cost to the end client.
- A management consultants recommendations on costs savings and efficiencies on a project actually increase the costs incurred by the end client.
If you do receive the dreaded letter or call from the end client or a solicitor alleging professional negligence against your company then don’t panic. Within the documentation you will have been issued with are a policy wording, policy summary and policy schedule. Within these documents will be clearly highlighted sections on how to make a claim, including contact details and the next steps. Remember, the sooner you let your insurer know of a claim the better, if in doubt contact them and they can advise you what to do. Visit our Claims page to ascertain the contact details of the claims handler.
There are numerous best practices that can assist you in risk managing down and minimising the chances of a claim occurring, the best being:
- Make sure you have an active policy in place, don’t leave yourself uninsured!
- Read and understand your contract in full, ensuring you retain copies of them
- Ensure before taking up a contract you are capable of delivering the required end result
- Get sign off on the completion of each milestone on the project.
From taking risks with an advertising campaign to applying creative license a little too liberally, creative work is subjective and open to interpretation. This puts you at risk of a PI claim should a client allege that you didn’t fulfil your part of the contract or meet their expectations. Read more here.
From advice that doesn’t pan out or an overran deadline to having client’s sensitive data stolen, there’s a multitude of reasons why a Finance and Business consultant could fall foul of an insurance claim. What can a PI policy protect them from? Read more here.
As a contractor in the oil, gas and energy sector, you are relied upon to offer the best advice and service possible to your clients. What happens, then, if you use incorrect measurements in your designs, resulting in significant delays to your client’s project? Or maybe you value a project incorrectly and the client refuses to pay? Read more here.
From coding errors to overrun deadlines, there’s a multitude of reasons why an IT contractor could fall foul of an insurance claim. What can a PI policy protect them from? Read more here.
Accountants handle huge amounts of personal data; if a mistake is made (a data breach, mishandling client documents, missing deadlines), the results can be far-ranging and costly. What can a PI policy protect them from? Read more here.