Which Insurance Do Freelancers Need?
2019 signals many changes for the self-employed. With the likes of Making Tax Digital (MTD), IR35 reforms launching in the private sector, and Brexit in plain sight, it’s a time of uncertainty and apprehension for many freelancers and contractors.
Working for yourself comes with many responsibilities, but it does put you in control of your livelihood; you can choose your clients, cherry-pick projects and enjoy flexible working hours. Having that choice in your work is well worth it, despite the current inhospitable contracting climate.
By choosing the right contractor insurance, however, you’re saving yourself one more job. While you’re not legally required to hold insurance as a freelancer (other than employers liability if there are two or more people in your company), it’s considered best practice that you do. Many clients request you have certain insurances in a contract so it’s wise to make sure you and your business are protected.
Professional Indemnity Insurance
Professional indemnity insurance often referred to as PI, is one of the fundamental types of insurance for freelancers or contractors.
A good PI policy protects you and your business, should your client allege that you’ve made an error or omission in your services. This can include inadequate advice given, negligence or flawed designs. It also covers legal expenses when defending the claim, or any compensation needed to fix the problem.
An example of where PI would be invaluable is if you were working as an accountant, and misplaced your client’s financial documentation. The client could then claim compensation for a breach of data along with any legal fees and time away from work, which would all be covered by PI.
PI also protects against professional negligence claims. Thus if you’re working as a business consultant and give advice that results in a significant financial loss, you could very well be facing a PI claim.
Public (and Employers) Liability insurance
Public liability (PL) insurance covers the cost of a claim made by a client or a member of the public that has suffered injury or property damage as a result of work you’ve done. While this may not seem necessary if you’re a home-based freelancer, it’s worth having even if you rarely work from a client’s office.
An obvious example of when PL is necessary is if you’re working as an IT contractor and someone trips over your laptop bag, causing them to break their arm and their laptop in the fall. You would be liable to pay compensation for the injury and replace the broken hardware, both of which would be a large and unnecessary out-of-pocket expense.
As well as PL cover, you should take into account whether you need employer’s liability (EL) insurance as part of the package. While PL isn’t a legal requirement, EL insurance is if you have two or more people working for your company. EL cover pays for compensation costs and legal fees if an employee or ex-employee sues for illness or injury caused by their work.
IR35 Tax Investigation Insurance
IR35 tax investigation insurance protects you from the potentially devastating effects of a tax investigation carried out by HMRC.
IR35 has been reintroduced to challenge possible avoidance of tax and NI contributions. In particular, HMRC is looking for so-called ‘disguised employees’ who gain and carry out work via partnerships and limited companies. This makes freelancers and contractors prime targets for investigation.
If you find yourself being investigated under IR35, HMRC will ask you to prove that you’re NOT an employee. This can mean extensive court fees and loss of work while the investigation is carried out. This is what IR35 insurance protects against. Most good policies will also include access to a leading tax expert as defence should you have to go to trial, which could prove pivotal for winning your case.
You should also check if you can extend any IR35 insurance to cover HMRC Section 660A enquiries before you purchase. These are separate investigations into a freelancer or contractor’s arrangements, where income is diverted to a family member to reduce or avoid tax liabilities.
While IR35 insurance is priceless in the event of an investigation, there are steps you can take to reduce your risk of being targeting under the legislation. You should consider a professional IR35 contract review – even if you feel safe from IR35 – and a working practices review as well, so you can keep doing what you love with peace of mind.