Personal Service Companies (PSC) and Professional Indemnity Insurance

Now this is an emotive topic...

You will usually find in your Recruitment Businesses’ Terms of Contract a requirement to hold “appropriate” insurance, or alternatively the actual amount required by the end hirer will be defined.  So firstly the requirement is usually a contractual one but let’s put that to the side for now.

If you work via an Umbrella company you are covered by them, if you work on our PAYE scheme you are covered by the recruitment business. However, if you run your own Personal Service Company you will not be covered by your recruitment business because you want to be “independent” of your agencies control, direction or supervision.

Either way, we find a number of new contractors resistant to purchasing insurance. The cost of Professional Indemnity for contractor’s ranges from as low as £120 to about £420 (if you take a package deal that includes other insurances). Considering that this is an allowable business expense, the actual cost in “loss of earnings” to you as an individual becomes quite small.

Let’s take a physical example. Whilst we might all use our private car for the occasional work trip with a colleague knowing that technically we are not insured as we are using it for work purposes, we predict that if we were to have an accident we would say we were not “working”.  Yet, if we were required to drive our own private van full of the client’s delicate glass bottles we would certainly pay for the extra contents insurance and make sure that we charge our clients enough to cover the cost of the extra insurance otherwise one crash would cripple our business. Yet we are still seemingly resistant in purchasing insurance that would underwrite our designs or our professional decisions.

The counter argument I hear, is that “we are just part of a team” or “my work gets signed off by the client”, these are of course very valid arguments and because of this I’d imagine that’s why the Professional Indemnity insurance for personal service companies is relatively low.

I would want to hold insurance partly because if it all went wrong the greatest cost may well be in the amount of time I would be spending counter arguing and preparing for civil claims when I should be working. Also consider the argument with the HMRC, if you are working outside of IR35 but for insurance purposes arguing you are just part of a team, it sounds like on one hand you want to be treated like an employee (with the hirer having vicarious liability for your actions) for insurance, but still arguing that you were “independent for tax”.

Do shop around though as it seems that prices can vary a lot, especially if the broker doesn’t understand exactly what you do.