Our guide to insurance for bookkeepers
Why do bookkeepers need insurance?
The law doesn't require you to have any kind of bookkeepers insurance but no matter how diligent you are, numbers are pesky and they have a way of not being always right.
If your mistake as a bookkeeper has had a negative financial impact on your client's business or they end up facing an HRMC investigation, you could be in trouble.
Even if you manage to eventually sort out your errors and put things in order for your client, the risk of having to pick up your client's defence cost or worse paying a compensation is real in these scenarios.
When starting up in a new business, there is sometimes the temptation to keep costs down by not investing in adequate liability insurance for bookkeepers. However, the cost of a good PI cover is surprisingly inexpensive in comparison with just one hour with a solicitor whose help you would need if a client accuses you of negligence or a costly error. And experience tells us that it is usually startups that end up in hot water with upset clients.
The other reason why you might need insurance for a bookkeeping business in place is if you are or plan to become a member of a professional organisation. It is usually a condition of the membership.
What insurance does a bookkeeper need?
The first consideration should be professional indemnity insurance because of the advisory nature of the bookkeeper profession. Other covers depend on the nature and size of your business.
Professional indemnity is a legal cover which protects a bookkeeping business against accusations of professional errors and mistakes by unhappy clients. Some of the scenarios we have mentioned above but we have also have a real story to share when professional indemnity insurance helped a bookkeeper in a difficult situation.
As a bookkeeper you probably meet your clients face to face either at your home/office or at the client's premises. Public liability cover protects you and your business against silly accidents like a spilt coffee over your client’s expensive laptop or your client slipping on your wet floor. The cost of injury compensation plus associated legal costs can easily run into thousands.
Then you'll need to consider whether you employ staff. Employers liability insurance is required by law and it is needed even if you have only part time employees or contractors. Premises and content cover is another consideration for businesses that have an office and couldn't easily bear the replacement and repair cost if something were to happen.
How does PI insurance protect bookkeepers?
Suited professional indemnity insurance provides cover up to £2 million backed by quality insurers and a dedicated legal team to assist if a situation arises.
The legal team is there for you at the early stages of a possible conflict with a client, advising you how to proceed to either stop the issue in its tracks or limit any possible damage. If the situation escalated, the legal team will step in to defend your case. The insurers pay for all your legal costs as well as any compensation if it becomes due.
Suited PI cover also comes with a bolt-on in the form of £100,000 legal expenses cover, useful for situations such as a tax dispute, negative PR crisis or some other commercial legal issue faced by your business.
How much PI insurance do bookkeepers need?
The Institute of Certified Bookkeepers recommends cover of at least £50,000 or to select a limit which is at least a minimum of 2.5 times of your annual turnover. However, there are other factors you might wish to consider.
- How many employees or subcontractors do you have? The possibility of a professional mistake increases every time you delegate work to another person.
- How big is your biggest client account? Generally the size of a client account goes hand in hand with its complexity and therefore a possible financial impact an error could cause.
- How many clients do you have and what is the combined size? Sometimes the same, and possibly incorrect procedure, is applied time and time again causing a portfolio wide issue.
- What is the most complex client account you look after and what is the size of it? Complexity increases risk. If you specialise in more complex industries, make sure your insurance is adequate.
Business legal protect
- Provides qualified advice on business related legal, tax and negative publicity matters
- Pays legal costs & expenses including appeal costs if you or your business face a legal threat or an HMRC/IR35 enquiry
- Chases up business debts over £200 if your credit control procedures didn’t work
- Included with your Professional Indemnity cover
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