Does my limited company need Professional Indemnity Insurance?
Direct Answer
Professional Indemnity Insurance (PII) is not legally required for most freelancers — but it is contractually required by almost every corporate or public sector client. Without it, you cannot win the contract. Most freelancers need a minimum of £1 million cover. Annual premiums typically range from £200–£800/year and are a fully allowable business expense.
What is PII and what does it cover?
Covers financial loss claims arising from your advice, design, code or service
Legal defence costs — often larger than the claim itself
Errors, omissions, negligence, and breach of professional duty
Retroactive cover for past work — usually included as standard
What PII does NOT cover
Deliberate wrongdoing — fraud or intentional misconduct is excluded
Personal injury to a third party — that is public liability
Physical damage to property — also covered by public liability
Employment disputes — that requires employers liability insurance
Do you actually need it?
| Situation | PII required? |
|---|---|
| You work with corporate or public sector clients | Almost certainly — check your contract |
| Client's contract specifies minimum cover | Yes — mandatory |
| You work with small businesses only | Recommended but rarely mandated |
| You give advice that could cause financial loss | Yes — even if not contractually required |
How much cover do you need?
| Client type | Recommended cover |
|---|---|
| Small businesses and startups | £500,000 minimum |
| Medium-sized businesses | £1,000,000 |
| Large corporates, NHS, public sector | £2,000,000–£5,000,000 |
| Financial services, regulated industries | £5,000,000+ (check contract) |
Cover requirements by contractor sector
| Sector | Typical minimum required | Notes |
|---|---|---|
| IT / software development | £1,000,000 | Most corporate contracts specify £1m minimum |
| IT / financial services or banking | £2,000,000–£5,000,000 | Financial sector clients commonly require £2m+ |
| Engineering | £1,000,000–£2,000,000 | Design and specification work carries higher risk |
| Management consulting | £1,000,000–£2,000,000 | Advisory work with financial impact |
| Creative / marketing | £500,000–£1,000,000 | Copyright and IP claims are the most common risk |
| Healthcare / NHS | £2,000,000–£5,000,000 | Public sector procurement requirements |
| Legal / compliance | £2,000,000+ | Regulated sector — check your specific contract |
Always check your contract first
The contract you sign with your end client or agency is the definitive source. Many contracts specify the exact cover level, the insurer's minimum rating, and whether the policy must be in force before work commences. Sector averages are a guide only — your contract overrides them.
What to look for when buying a PII policy
Retroactive date
The retroactive date is the date from which your policy covers past work. Always buy a policy with the earliest possible retroactive date — ideally back to when you started contracting. A policy that only covers work done after purchase leaves historic projects exposed.
Claims-made basis
PII operates on a claims-made basis — meaning it covers claims made while the policy is active, not necessarily when the work was done. This is why run-off cover matters when you stop contracting. Confirm the policy is active and renew without gaps.
Definition of professional services
Check the policy wording covers your specific work. A generic "IT contractor" policy may not cover certain specialist activities — AI development, financial algorithm design, or medical device software may require specialist cover or endorsements.
Excess / deductible
Most PII policies have an excess of £500–£2,500. A higher excess reduces your premium but means you pay more in the event of a claim. For a sole contractor, keep the excess to a level you can absorb without significant cash flow impact.
How much does PII cost for a UK contractor?
| Cover level | Typical annual cost | Effective cost after corporation tax relief (19%) |
|---|---|---|
| £500,000 | £100–£200/year | £81–£162/year |
| £1,000,000 | £150–£300/year | £122–£243/year |
| £2,000,000 | £250–£500/year | £203–£405/year |
| £5,000,000 | £400–£900/year | £324–£729/year |
The effective cost after corporation tax relief is significantly lower than the headline premium. A £300/year policy at the 19% small profits rate costs your company £243 net. At the 25% main rate it costs £225 net. Always think of business insurance in after-tax terms.
Premiums vary significantly between insurers. Specialist contractor insurance providers — including Qdos, Kingsbridge, and PolicyBee — typically offer better rates and more appropriate cover than general business insurers. Compare at least three quotes annually, particularly if your day rate or sector has changed.
Does IR35 status affect my PII requirements?
If you are outside IR35 — you are operating as a genuine business providing professional services. PII is strongly recommended and almost certainly required by your contract. Your limited company is the contracting entity and bears full professional liability.
If you are inside IR35 — you are treated as an employee for tax purposes but may still be contracting through your limited company. Your end client's employers liability insurance does not automatically cover professional liability claims arising from your work. Check your contract — PII requirements often remain in place regardless of IR35 status.
Umbrella workers — if you work through an umbrella company, check whether the umbrella's own PII policy covers your specific work. Many do not. If your contract requires PI cover in your name, a personal policy may still be needed.
IR35 status is separate from professional liability. A client claiming your work caused financial loss can pursue a claim whether you are inside or outside IR35. Do not cancel PII on the assumption that inside IR35 status provides protection — it does not.
Other insurance types contractors need
Public Liability
£100–£200/year. Covers bodily injury or property damage to third parties. Needed if you visit client premises or host clients at your own office.
Employers Liability
Legally required if you employ anyone — even on a temporary or part-time basis. Not needed if you are the sole director and only employee of your limited company.
Cyber Insurance
£200–£500/year. Growing in importance for tech freelancers. Covers data breaches, ransomware, and the cost of notifying clients after a cyber incident.
Relevant Life Policy
Company-paid, tax-efficient life cover. Premiums are a corporation tax-deductible business expense and are not treated as a benefit in kind — significantly more efficient than personal life insurance.
Can my Ltd company pay for it?
Yes — all insurance premiums are allowable business expenses
Deductible against corporation tax — reduces your tax bill directly
Not a benefit in kind — no Income Tax or National Insurance charge on the premium value
Where to get PII
Use a specialist contractor insurance broker. Known providers include Hiscox, Markel, PolicyBee, and Simply Business. Always compare — price varies significantly between providers. Check your accountancy package — some contractor accountants include PII as part of their offering.
Check your Autobooks package — professional insurance is one of the five areas we review as part of your Wealth Gap assessment. Take the free quiz →
Have more questions about PII? Professional indemnity insurance — questions answered →
Your accountant should know which cover your contracts need.
Autobooks — full-service contractor accountancy from £89+VAT/month. We review your insurance position as standard.