Contractor insurance: what end clients and agencies require, and the IR35 link

The three policies in a standard contract schedule

Most UK contractor contracts list three core insurance policies in the schedule: professional indemnity, public liability and employers liability. Typical minimum limits are £1 million for professional indemnity, £1 million to £5 million for public liability and £10 million for employers liability, according to standard market practice. The schedule names each policy, the required limit and the certificate evidence you must supply before the contract starts.

Professional indemnity covers claims arising from the advice you give and the deliverables you produce. If a client suffers a financial loss because of an error in your work, this policy responds. Public liability applies when you are physically present at a client site and cause injury to a third party or damage to their property. Employers liability is different: it covers claims from people you employ, and a single-director personal service company is exempt from the compulsory requirement under the Employers Liability (Compulsory Insurance) Act 1969, as confirmed by the Health and Safety Executive in its publication HSE40. Despite that exemption, agencies and end clients routinely insert employers liability into the schedule anyway, and they expect you to show a certificate even though the law does not force you to hold the cover.

Why agencies insist on employers liability for one-person companies

Agencies act as intermediaries between the end client and your personal service company. Their master service agreements with end clients often pass down every insurance requirement in the client contract, and agencies do not distinguish between a one-person company and a firm with staff. If you cannot show an employers liability certificate, the agency may refuse to release the contract or may delay your start date.

The insistence comes from the agency's own liability. If an end client contract demands employers liability at £10 million, the agency must evidence that cover sits in place across its supply chain. A substitution clause in your contract does not change that demand: the agency still treats your personal service company as a business that could engage workers, even if you never do. In practice, agencies ask for the certificate at the same time as your professional indemnity and public liability documents. If you cannot produce it, the agency may mark your file as non-compliant and offer the role to another contractor. Some agencies accept a written waiver from the end client, but that is rare and usually only in low-risk sectors. The cost of adding employers liability to a combined contractor policy is small, so most contractors simply buy it to avoid the friction.

Umbrella vs personal service company

The insurance structure differs sharply between umbrella employment and running your own personal service company. An umbrella company employs you, so it holds the employers liability and public liability policies on your behalf. The umbrella also carries professional indemnity in many cases, and the cost sits inside the umbrella margin you pay each week. A personal service company must arrange its own policies in its own name.

When you work through an umbrella, you are not a director of the contracting entity. The umbrella is the employer and the policyholder, and you are a worker covered by its arrangements. Your payslip shows a margin deduction that includes the umbrella's insurance costs, but you do not own the policies and you cannot claim the premiums as a business expense because you are not self-employed. With a personal service company, the company owns the policies and pays the premiums. Those premiums are deductible against corporation tax because they are incurred wholly and exclusively for the trade, as set out in general UK tax principles. The company also pays insurance premium tax on most policies, which is not recoverable. A key difference emerges at renewal: a personal service company can shop for its own combined policy, while an umbrella contractor has no choice about the insurer or the level of cover the umbrella selects.

How insurance feeds into IR35

Insurance appears as a financial risk indicator in the HMRC Check Employment Status for Tax (CEST) tool. If your personal service company carries professional indemnity insurance and bears the cost of putting work right at your own expense, CEST treats that as evidence you are in business on your own account. That points towards outside IR35, but insurance alone is never sufficient to determine the outcome.

The off-payroll working rules apply to medium and large private-sector clients since April 2021 and to public sector clients since 2017, as set out in the GOV.UK guidance on off-payroll working. CEST weighs insurance alongside control, substitution and mutuality of obligation. If the end client directs how, when and where you work, and if you cannot send a substitute, then insurance will not save you from an inside-IR35 determination. Financial risk is one factor among many. The CEST tool asks whether your company is required to correct any mistakes at its own cost and whether you carry professional indemnity cover. Answering yes to both strengthens the case for self-employment, but HMRC warns that no single factor decides the status. A contract that demands insurance but also gives the client full control over your methods will still fall inside the rules.

Sector-specific requirements

Different sectors impose their own insurance demands beyond the standard schedule. Financial services clients expect professional indemnity limits that align with Financial Conduct Authority expectations, often £2 million or more per claim. Construction contracts link insurance to the Construction Industry Scheme and the Construction Design and Management Regulations, while public sector frameworks commonly set public liability at £5 million as a standard condition.

Financial services firms ask for higher professional indemnity limits because their own regulatory capital depends on the cover their suppliers hold. A contractor advising on compliance or software for a bank may face a £5 million professional indemnity requirement, not the £1 million seen in smaller commercial contracts. In construction, the CDM regulations place duties on contractors and the principal contractor, and insurance must respond to site-based risks. Public sector frameworks, such as those run by Crown Commercial Service, publish standard terms that require public liability of £5 million and employers liability of £10 million. These are not negotiable at the individual contract level. Contractors moving between sectors must check the schedule each time, because a limit that satisfied a private client will not automatically meet a public sector framework. The cost difference between £1 million and £5 million of public liability is modest, but failing to match the requirement can disqualify you before you start.

Gaps that cause problems

Insurance gaps typically appear between contracts, during overseas assignments and where cyber cover is missing. A policy that lapses when one contract ends leaves you unprotected if a claim arises from the previous work. Professional indemnity run-off cover is needed for six years after the last contract in many professions, and working abroad can invalidate cover that only applies within the UK.

Most contractor policies are written on a claims-made basis, meaning the policy in force when the claim is made must respond, not the policy in force when the work was done. If you let cover lapse for a month between contracts, a claim arriving in that month has no insurer to notify. Run-off cover closes that gap, and many professions require it for six years under the Limitation Act 1980. Working abroad creates a separate problem: a UK policy may exclude liability arising from work performed outside the country, or it may require you to notify the insurer before you travel. Cyber and data cover is increasingly demanded in IT contracts, particularly where you handle personal data under the UK General Data Protection Regulation. A standard professional indemnity policy excludes many cyber events, so clients now ask for separate cyber cover or an extension. Contractors who ignore these gaps face uninsured claims and a broken relationship with the agency that placed them.

What insurance does an IT contractor need in the UK?

An IT contractor working through a personal service company typically needs professional indemnity, public liability and, where the agency demands it, employers liability. Professional indemnity covers errors in your work, public liability covers injury or damage at a client site, and employers liability covers claims from staff even though a single-director company is exempt. Cyber cover is increasingly required in IT contracts.

Do umbrella company contractors need their own insurance?

No, because the umbrella company employs you and holds the relevant policies on your behalf. The umbrella carries employers liability and public liability, and often professional indemnity, with the cost included in its margin. You do not need to arrange your own cover, but you should check the umbrella's certificate to confirm the limits meet the end client's requirements.

Does having business insurance help with IR35 status?

Yes, but only as one factor. HMRC's CEST tool treats financial risk, including carrying professional indemnity insurance and bearing the cost of rectifying mistakes, as evidence of self-employment. However, CEST also weighs control, substitution and mutuality of obligation, and insurance alone does not determine your status.

Why does my agency require employers liability for a one-person limited company?

Agencies pass down insurance requirements from their master service agreements with end clients. Even though a single-director company is exempt from compulsory employers liability under the law, the agency must evidence that the cover sits in place across its supply chain. If you cannot show a certificate, the agency may refuse to release the contract.

Do I need run-off professional indemnity cover after I stop contracting?

Yes, in many professions you need run-off cover for six years after your last contract. Professional indemnity policies are claims-made, so a claim arriving after you stop work must be notified to a policy that is still active. Run-off cover ensures you remain protected for claims arising from work you completed while contracting.

Frequently asked questions

What insurance does an IT contractor need in the UK?

IT contractors typically need professional indemnity (PI) cover, often with a minimum of £1 million, to protect against claims of negligence. Public liability (PL) insurance, usually £1 million to £5 million, is needed if you interact with clients on their premises. Employers' liability (EL) is compulsory if you have staff, but agencies may require it even for single-director companies.

Do umbrella company contractors need their own insurance?

No, umbrella companies employ contractors and provide employers' liability, public liability, and often professional indemnity cover on their behalf. However, you should confirm the umbrella's policy limits and scope to ensure they meet your contract requirements and adequately cover your work.

Does having business insurance help with IR35 status?

Yes, under the off-payroll working rules, financial risk is a relevant factor. Having your own insurance, such as professional indemnity, and bearing the cost of rectifying mistakes can indicate that you are in business on your own account, supporting an outside IR35 status. The HMRC CEST tool considers these factors.

Why does my agency require employers liability for a one-person limited company?

Agencies often require employers' liability (EL) insurance even for single-director companies because their client contracts may demand it, and it provides reassurance against potential claims. Although single-director PSCs are exempt from compulsory EL, agencies may still require it to mitigate risk and align with industry standards.

Do I need run-off professional indemnity cover after I stop contracting?

Yes, in many professions, you need run-off professional indemnity (PI) cover for six years after your last contract. This protects you against claims arising from work you completed while contracting. Check your policy terms and consider purchasing run-off cover to ensure you are protected during the limitation period.