How to obtain professional indemnity insurance

The Bottom Line

Professional Indemnity (PI) insurance is a mandatory safety net for anyone providing tax advice or professional services in the UK. It covers your legal defence costs and any compensation awarded if a client sues you for a perceived mistake, such as an error on a tax return or a missed deadline. Without it, you are personally liable for these costs, which can easily reach tens of thousands of pounds.

1. Verify Your Professional Body's Requirements

If you are a member of a professional body (such as the AAT, ATT, or CIOT), they will have strict "Minimum Terms" for your insurance. Before you buy, you must ensure your policy meets these specific benchmarks, which usually include:

• The Limit of Indemnity: This is the maximum amount the insurer will pay. This is often calculated as a multiple of your gross fee income (e.g., 2.5 times your fees) or a set minimum like £250,000.
• The Excess: This is the amount you pay toward a claim. Your professional body may cap this amount to ensure you can actually afford to pay it.
• Policy Wording: Some bodies require you to use an insurer that provides "Full Civil Liability" cover rather than just "Negligence" cover to ensure broader protection.

2. Understanding "Claims-Made" Policies

Most PI insurance in the UK is written on a "claims-made" basis. This means the policy that pays out is the one that is active at the time the claim is made, not necessarily the one that was active when the work was originally done. Because of this, it is vital to check for "Retroactive Cover." This ensures you are protected for work you did in the past, provided you have had continuous insurance in place.

3. Finalising and Purchasing Your Policy

1. Confirm the details: Before paying, double-check that your business name, projected turnover, and the services you offer (e.g., "Tax Consultancy") are correctly listed on the quote.
2. Check for "Run-off" options: Ensure the insurer offers run-off cover, which protects you if you close the business in the future.
3. Finalise the start date: Ensure there is no gap in cover. If you are switching providers, the new policy should start the exact moment the old one expires.
4. Make the payment: You can often pay annually or via monthly direct debit. Note that paying monthly may include a small interest charge.

Action Item: Once you have purchased the policy, download your Insurance Certificate and Schedule. You will need to provide the policy number and expiry date when applying for your practising certificate.

4. Keeping Records

Keep your insurance certificates for at least six years, even after a policy has expired. Because tax claims can be made several years after a return is filed, you need a clear paper trail of who your insurer was at any given time. Store these in a dedicated "Compliance" or "Legal" folder in your cloud storage.