Business Insurance for Freelancers
A complex and once expensive area of freelance and contractor finance, many contractors are now looking at the various insurance policies which are available to protect you in the event of an accident at work, or claims against you for negligence. We have created this section with as little jargon as possible to make this important subject as accessible as possible. This section was created as a result of feedback from our regular visitors. You should speak to a professional Insurance Broker for individual advice.
Freelancers provide professional advice which is relied upon by others (clients). This means if you make a mistake in your work you have a direct financial responsibility to your client for the errors. Whilst you may consider the possibility remote, it does happen. Increasingly, some clients are insisting on evidence of professional indemnity insurance and having this protection will prove to your clients that you are professional in your approach and will help in obtaining future work. Although mistakes are rare, these policies are now reasonably priced and will also provide peace of mind.
Provides financial protection for your company and is designed to meet the cost of defending claims made against you, including damages that may become payable. Claims can occur where a client suffers a financial loss as a result of alleged mistakes or omissions on your part. You may even be sued by a client who is merely dissatisfied, but has no valid claim, leading to substantial legal costs and time away from contracts. Of course, such claims are rare.
This type of policy will protect you against your legal liability where you accidentally cause damage or loss to someone else's property (Examples: Coffee down the back of the computer or over the keyboard, knocking a laptop or other piece of IT equipment off a desk etc). Also, if you accidentally cause injury to someone whilst working at a client's premises.
This insurance is arranged to protect employers against claims for injury or illness brought by employees. Employers' Liability (Compulsory Insurance) Act 1998 requires that employers maintain cover to a minimum of £5,000,000 in respect of such claims.
Tax & VAT Investigation Insurance
Protects you in the event of an investigation by the tax authorities - more and more freelancers are investing in this type of policy in light of IR35 and S660 and the complications it may bring. Would typically include protection against VAT disputes with HMRC and employer compliance investigations (PAYE,NIC,P11D).
Home Office / Equipment Insurance
Since more and more freelancers are working from home, these types of policies are intended to cover the loss or damage to equipment, premises, documents in the event of theft, accidental damage or any other unforseen 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 tend to depend on the following factors:
- The annual turnover of a freelancer's company
- The nature of your business operation
Whether the freelancer works through an agency, or direct with the client. Rates for freelancers working through agencies tend to be lower, but not in all cases.
Should you wish to take out Public and Employers Liability insurance, this should be claimed as part of the IR35 '5% general allowance'.
Professional Indemnity insurance, on the other hand, can be claimed as a 'Schedule E' expense - in addition to the 5% allowance, so this will be an attractive scheme for many. Professional Indemnity insurance is the most popular scheme for freelancers.
More information on different freelancer insurances.