Although IT contracting is not a particularly hazardous job, you’re still going to need some sort of insurance.
Insurance was once a complex and expensive area of contractor finance and, although you should speak to a professional insurance broker for individual advice, this article will help you understand the various insurance policies that will protect you in the event of an accident at work, or claims against you..
Contractor insurance — an overview
IT contractors provide professional advice that their clients rely on.. This means if you make a mistake in your work to the detriment of your client, the responsibility lies with you to compensate them. While you may consider this to be a pretty slim possibility, research shows that clients are becoming more litigious. Policies are usually reasonably priced and will also give you and your client peace of mind — something you can’t put a price on.
Increasingly, some clients are insisting on evidence of professional indemnity insurance, so having this protection will prove to your clients that you’re professional in your approach, helping you to secure more contracts now and in the future..
Professional indemnity
Gives you and your company financial protection and is designed to meet the cost of defending claims made against you, including damages that you may need to pay. Claims can occur where a client suffers a financial loss as a result of alleged mistakes or omissions on your part.
Clients can technically sue you even if they have no valid claim, but are merely dissatisfied. This can lead to substantial legal costs and time away from contracts. Thankfully such claims are rare.
Public liability
This type of policy will cover you in the event you cause damage or loss to someone else's property. This can range from spilling coffee onto a keyboard to knocking an entire piece of equipment off a desk!
The policy also covers you if you accidentally cause injury to someone while working on a client’s premises. For example, someone could trip over cables you’re running from one machine to another while you work on them.
Employers’ liability
This insurance protects employers against claims for injury or illness that employees might bring agains them. The Employers' Liability (compulsory insurance) Act 1998 requires that employers maintain cover to a minimum of £5million in respect of such claims.
Many contractors don't take out this type of policy (since they’ll be claiming against their own limited companies!) but it is a statutory requirement all the same. All insurers provide £10million cover as standard.
Tax and VAT investigation insurance
Protects you in the event of an investigation by the tax authorities - more and more contractors are investing in this type of policy in light of IR35 and the complications it can sometimes bring. A policy would typically include protection against IR35 investigations and VAT disputes with HM Customs and Excise and employer compliance investigations (PAYE, NIC, P11D). This type of cover should be pretty cheap, although some financial advisors resell packages at a premium, so it's best to shop around.
Home office/equipment insurance
With more and more contractors working from home, this types of policy covers the loss or damage to your equipment, premises or documents in the event of theft, accidental damage or any other unforeseen circumstances.
How much do these policies cost?
Policies of this type are far less expensive than you may think, although the final cost will depend on your individual circumstances. The cost of individual polices tends to depend on the following factors:
• The annual turnover of a contractor's company
• The specific nature of your businessWhether you work through an agency, or directly with the client.
Rates for contractors working through agencies tend to be lower, but not in all cases.
Further links:
- Contractor finance
- IR35 legislation
- Setting up your company
- Find an IT job
Disclaimer: the information on these pages is provided for your information and reference only. Before making any important decisions regarding your employment or any legal matter, you should consult a qualified professional adviser who can provide specific advice based on your individual position.
