Despite the shifting political landscape and legislative reform of recent years, there’s been a marked rise in contracting during that time. We now face an unprecedented situation on a global scale in the form of COVID-19. While the almost inevitable lean towards self-employment will continue when normality resumes, those already contracting may face challenging times over the next few months.
While coronavirus has placed us in unchartered waters, the past has taught us that widespread economic uncertainty goes hand in hand with an increase in insurance claims. You, like many businesses, may be clamping down on expenditure, and feel that not renewing your business insurances is one way to save cash; this could prove counterproductive.
There are multiple reasons why it’s important to make sure you’re protected, perhaps now more than ever.
Why should I make sure I’m insured during coronavirus?
End-client cashflow issues
As a contractor, building good working relationships with your clients is part and parcel of making your living. However, during times of fiscal hardship, businesses may look to recoup losses from lack of sales in any way they can. Perhaps they pursue a mistake or omission that you made during your time working with them, something that they’d usually absorb as part of their wider costs. Maybe they claim you were negligent whilst providing your services as a means to avoid paying your invoices. Either way, it’s a difficult situation to navigate.
There are a couple of insurances that can be really beneficial should you find yourself in such an unfortunate scenario. Professional indemnity covers defence costs and any damages you may be ordered to pay, which can quickly stack up, while legal expenses can prove invaluable in contract and pay disputes – both for legal costs and as a debt recovery service.
Higher liability expectations
Cash seems to be low for just about everyone at the moment, bar toilet roll manufacturers. This means that winning – or even retaining – work is tougher than normal for many contractors. With much fiercer competition and end clients wanting to buffer themselves against any preventable losses, you may see contract terms become much more stringent when it comes to liability.
It’s standard practice for end clients to stipulate a minimum level of professional indemnity cover to ensure they don’t have to pay for any mistakes made by a contractor. However, it may be prudent to consider getting a higher limit to cover potential contractual demands, thus making it easier to win new work from the off. If you don’t currently have Professional indemnity insurance or are considering not renewing your policy, remember that this cover is most often claimed on after the work has been completed – sometimes with a significant lapse of time between the perceived mistake and the claim. Professional indemnity works on a claims-made basis, meaning if you take out cover now, all previous work is covered (provided a claim hasn’t already been made against it by a client). On the flip side, if you currently have PI and cancel your policy, you aren’t protected from a claim even if you carried out the work while the policy was in force.
Alternatively, if you’ve decided to recently close down your company, run-off cover could be a wise investment. This is usually a one-time payment as opposed to a monthly cost and can protect you from professional indemnity claims for up to 6 years depending on the policy you purchase.
Greater risk of physical injury
Another unfortunate by-product of an economic downturn is widespread cost-cutting. This leads to a stretched workforce and less available or lower quality equipment. Add in pandemic-induced anxiety, disturbed sleep, and general brain-fog and the risk of physical injury in the course of work – particularly in manual industries like construction, engineering and off-shore energy sector roles – is suddenly much higher.
An increase in accidents is to be expected, which is where having personal accident insurance can offer a lifeline to affected contractors. One of the biggest risks of self-employment is not being able to work; after all, the trade-off for being your own boss (and being able to set your own rates) is a lack of employer safety net. Occupational personal accident cover provides financial support should you sustain a work injury that prevents you from providing your contracted services, and usually includes a lump sum pay-out should an incident result in disablement or death.
Public liability insurance can also come into play here. A good public liability policy will safeguard you financially from defence costs and reparations should you cause accidental injury to another person, or even unintended damage to third party equipment or property while working.
IR35 reform delay
The private sector IR35 reform has been a source of contractor concern since it was announced back in 2018. Contractors typically benefit from income tax relief as they do not receive employee benefits like holiday and sick pay or a pension, in addition to covering overheads like providing their own equipment. The IR35 legislation acts to decide if a contractor is genuinely self-employed, 3or is in fact looking for a quick-win increase in their take home pay via this tax relief. This reform essentially shifts the responsibility of deciding a contractor’s employment status (i.e. whether they’re a genuine contractor or not) from the contractor themselves to the end client. This was due to be implemented in April 2020 but the roll out was postponed until 2021 due to the coronavirus lockdown. If you’re not already familiar with IR35 – otherwise referred to as the off-payroll rules – you can read more about it here.
Ultimately, the delay to the reform dictates that contractors must determine their own employment status for another year. This means that the liability of a wrong determination (seen as wilful tax avoidance by HMRC) still sits with you as the contractor for that time too. While the Treasury certainly has bigger fish to fry presently, they’ll almost certainly be looking to refill the coffers as quickly as possible, and limited company contractors are a relatively easy revenue stream when compared to deep-pocketed corporate entities.
For this reason it’s crucial you understand your IR35 position with every contract you take on - getting a professional contract and working practices review is pivotal to making sure you know your position. IR35 investigation insurance is also a worthy investment. HMRC enquiries can take years to close and can become very costly in that time; paired with any tax debt you may be found owing, an investigation can be crippling to a small business. A good policy will include an IR35 status review, as well as cover unpaid tax debts, interest, fines, and legal fees, and will flex with the reform roll out to cover the contractor, recruiter, and end client for all of the above. Our IR35 Protect product offers the above comprehensive package.
Increase in hacking and fraud
As a result of lockdown, anyone typically office-based is working from home. Without corporate-level cybersecurity measures in place and workers sharing documents via a variety of (perhaps unfamiliar) software, security measures may be more vulnerable than usual. This poses an increased risk of hacking and fraud.
Much like a mistake made in the course of your work, you would be held accountable as a limited company contractor should you cause an end client to fall foul of a security breach. A breach can include the loss of sensitive documents, the theft of personal data, financial fraud, impersonation, or even simply having your laptop stolen with any of the aforementioned information readily available on it. Cyber liability covers your defence costs and any damages payable should you be unlucky enough to find yourself in such a situation.
Where can I get cover?
We here at Kingsbridge offer a comprehensive, competitive insurance package to protect you against these above potential risks made even more potent by the coronavirus pandemic.
Alongside professional indemnity, public liability, and personal accident insurance – legal expenses and cyber liability are available as add-on products for further assurance. Our market-leading IR35 Protect product can also be purchased as a stand-alone or an add-on. All of our products and policies come with a range of limits for tailored cover.
You can get a quick, no-obligation quote online here. If you’re already with us and would like to talk through your cover options in light of the lockdown, contact us on 01242 808 740 and we’d be happy to help.