Why PSC contractors require business insurance
Picture this: you are a successful Personal Services Company (PSC) contractor, but just when you think you have everything under control, a letter arrives from HMRC notifying you of an IR35 enquiry. Do you have the time and experience to fight your corner?
From managing tight deadlines to handling complex projects, contractors face plenty of daily challenges, and you can’t always plan for unforeseen events. In our experience, protecting your hard-earned gains with insurance isn’t a choice — it’s an absolute necessity!
In this blog, we highlight the importance of considering the range of business insurances available for PSC contractors. Whatever the world throws at you, enjoy the peace of mind that comes with knowing that you have everything covered.
Why is business insurance important for PSC contractors?
HMRC introduced the private sector IR35 reforms, also known as off-payroll working rules, back in April 2021. To be deemed as working outside of the IR35 rules, contractors must operate as a genuine business. This involves paying themselves a salary and taking any remaining income as dividends, while also handling all the tax affairs.
However, not all contractors operating through a PSC fully understand their new responsibilities. There is an element of financial risk when working outside IR35, so purchasing professional indemnity insurance shows an understanding of the financial obligation and responsibility to protect your interests.
Most companies that hire contractors will also insist on them having adequate professional indemnity and public liability cover. In short, being insured is sound business practice and shows potential customers that you take responsibility for your work and are protected if the worst happens.
Proof of insurance is also vital for recruiters who need contractors to be ready to start as soon as a job lands on their desk. They can inform the client that the contractor can start work immediately as they know that all the employment status and right-to-work checks are in place.
Can business insurance demonstrate your IR35 status?
When HMRC comes knocking on their door, PSC contractors need to show that they are providing services as a business and not as an employee. Employees do not require public liability insurance as they are covered by their employer.
While holding suitable business insurance has little or no impact on the status of a worker, it is an indication that the contractor has taken steps to protect themselves from contractual risks and liabilities.
What types of insurance do PSC contractors require?
There are various types of business insurance available on the market, and the exact policy required will depend upon the type of work being undertaken by the contractor. Read on to learn about the most common policies and why contractors need them.
Professional indemnity insurance: Independent contractors appreciate the freedom and flexibility that comes with working for themselves. However, this autonomy also exposes them to certain risks. In the event that a contractor is accused of negligence, such as offering poor advice, making errors, infringing on copyright, violating confidentiality, or engaging in defamation, professional indemnity insurance can provide protection.
Public liability insurance: Contractors often work on-the-go, such as at a client’s location or on-site, and may even travel internationally. Public liability insurance provides protection if someone is injured or their property is damaged due to the actions of the contractor or their limited company. This coverage includes damages, legal expenses, fees and other costs necessary to remedy the situation. Public liability claims can be expensive, and a client may shift the liability onto you, so recruiters and contractors need to be covered.
Employers’ liability insurance: For certain businesses, employers’ liability (EL) insurance is mandatory. Coverage can provide protection for employees in case they sustain injuries while working. Contractors who have employees, apprentices, or even family members assisting them with their work must have this insurance in place.
Directors’ and officers’ liability insurance: It is worth remembering that PSC contractors can be held responsible for any legal violations or offences related to their business. This includes being personally liable for claims made by regulators, clients, employees, or HMRC for violations such as health and safety breaches or financial mismanagement. Insurance offers protection from these risks.
Personal accident cover: In our experience, this is the most commonly claimed against policy. It acts as a safety net for contractors who suffer injuries while working as self-employed individuals, providing them with a weekly income of up to £500 during their recovery period. Additionally, in the unfortunate event of permanent disability or death as a result of a work-related accident, a lump sum will also be paid out.
IR35 protect insurance: Recent changes to IR35 legislation have caused contractors, end-clients and recruiters to seek extra protection for “outside” engagements. While it does not replace good compliance, IR35 insurance can help reduce the risk and protect everyone in the contractor supply chain in the event of an HMRC investigation. This policy offers legal advice and covers any taxes, interest and penalties related to IR35 investigations. It can also be adjusted to cover whoever HMRC decides is responsible for violating off-payroll working regulations.
Do you have a question about business insurance?
Many policies are mandatory, so we strongly recommend contractors and recruiters regularly review their business insurance cover. End-clients can shift a large portion of liability to contractors, so adequate insurance is an effective method to reduce risk.
Whatever your next job brings, ensure your business and your contractors are protected with a Kingsbridge insurance package. Get all the cover you need in one place, and let us do all the paperwork on your behalf.