Accountants Professional Indemnity Insurance
An accountancy claim is usually a number. A penalty that should not have been incurred, tax paid that need not have been, relief missed because a deadline passed. These claims can be relatively straightforward to quantify and hard for a firm to argue about, which is why this class produces a steady flow of modest claims rather than occasional large ones.
The professional bodies set the floor. ICAEW, ACCA and AAT each require members in practice to hold professional indemnity, commonly expressed as a multiple of gross fee income subject to a minimum and a cap, and a firm below it is in breach of its membership rules quite apart from being underinsured.
Two areas have moved sharply in recent years. R&D tax relief work has received increased regulatory and HMRC scrutiny, and firms that prepared claims now being challenged face enquiries into work they considered finished. Payroll and bank detail fraud is the other, because a firm holding client payment data is a target whether or not it handles client money.
We can advise accountancy and bookkeeping practices on professional indemnity that satisfies the relevant body, together with the fidelity and cyber cover the work actually calls for.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Tax advice that costs the client money
Advice on a transaction, a structure or a relief that turns out to be wrong. The claim is the tax, interest and penalty the client would not otherwise have paid, and it is quantified precisely, which removes most of the usual argument about loss.
Missed filing and election deadlines
Corporation tax, VAT, RTI, Companies House and elections with statutory time limits. These are the least defensible claims in the class, because the date either was met or was not, and no judgement is involved.
Research and development claims
HMRC has increased enquiry activity into R&D relief substantially. Where a firm prepared or assisted with a claim now disallowed, the client looks to the firm for the repaid relief, the penalties and the cost of the enquiry.
Bookkeeping error and undetected fraud
Misposted transactions, unreconciled accounts and management figures that led a client to a decision. Related to it, and harder, is the claim that the firm should have noticed an employee stealing from the client over a period of years.
Payroll and payment redirection fraud
A practice holding bank details for payroll and supplier payments is worth attacking. A fraudulent instruction acted on, or an email account compromised and used to redirect a payment, produces a loss and a data breach at the same time.
The cover we arrange
We arrange professional indemnity and related insurance around the services you provide, the clients you work with and the contractual requirements you face. The appropriate cover and limits will depend on your individual activities and the terms available from insurers.
Professional indemnity
Claims arising from negligent accountancy, tax and bookkeeping services. Written on a claims made basis, which suits a profession whose errors surface when HMRC opens an enquiry years later.
- Negligent accounts, tax and advice
- Missed deadlines and elections
- Meets ICAEW, ACCA or AAT requirements
- Defence and enquiry representation costs
Fidelity and crime
Theft by the practice's own staff, and cover responding to fraudulent payment instructions. Distinct from professional indemnity, which answers negligence rather than dishonesty within the firm.
- Theft by employees
- Fraudulent payment instructions
- Social engineering cover
- Client money where held
Cyber and data
The practice holds payroll data, bank details and personal information for every client. A breach is a notifiable event, and business interruption from ransomware during a filing season is a serious operational problem in its own right.
- Ransomware and system restoration
- Data breach notification
- Business interruption
- Email compromise
Run off
Continuing cover after the practice ceases or merges, required by the professional bodies for a period after closure. Tax claims arrive late, because an enquiry can open several years after a return was filed.
- Required by the professional bodies
- Claims arrive with HMRC enquiries
- Commonly six years
- Arranged before closure
Office, employers and public liability
Practice premises, equipment and records, together with injury cover for staff and visitors. Employers' liability is legally required once anybody is employed.
- Premises, contents and equipment
- Records and reconstitution costs
- Employers' liability, legally required
- Visitors to the office
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Gross fee income and the split across audit, tax, accounts, bookkeeping, payroll and advisory work
- Whether the firm is a registered auditor
- Whether R&D tax relief claims are prepared or assisted with, and for how long
- Any involvement in tax planning arrangements or marketed schemes, past or present
- Whether insolvency, corporate finance or trustee work is undertaken
- The largest single client by fee, and any client representing a large share of income
- Professional body membership and the qualifications of those signing off work
- Claims and notified circumstances over the last six years
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Work mix rather than size
Bookkeeping and compliance accounts are rated far more cheaply than audit, corporate finance and tax planning at the same fee level, because the consequence of an error differs by an order of magnitude.
R&D and specialist tax income
Currently the sharpest question in the class. Firms with significant R&D claim income are rated cautiously, and the proportion of income and the period it covers both matter.
Client concentration
A firm where one client represents a large share of fees carries a concentrated exposure, since a single relationship failing takes both the income and the claim.
Fee income multiple
The professional bodies express the required limit as a multiple of gross fee income, so income drives both the premium and the limit the firm must carry.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Dishonesty of the insured
Theft or deliberate fraud by a partner or director is excluded for the person involved, though innocent partners are generally protected. Where the firm handles client funds, fidelity cover is what answers the loss.
Marketed tax avoidance arrangements
Involvement in promoted schemes is usually excluded or specifically conditioned. Insurers separate this firmly from ordinary tax planning, and any history needs disclosing rather than describing as advisory work.
Fines and penalties on the firm
Regulatory fines imposed on the practice itself are generally uninsurable. A penalty the client incurs because of the firm's error is different, and is claimable as the client's loss.
Fee disputes and trading losses
Unrecovered fees and the practice's own commercial losses are not claims, although pursuing a client for fees frequently produces a negligence counterclaim that is.
Common questions
How much professional indemnity does an accountant need?
Your professional body sets the floor, normally as a multiple of gross fee income subject to a minimum and a cap, so it rises as the practice grows. The practical figure is often higher, because it should reflect the largest single error you could make for your largest client rather than the minimum you are allowed to buy.
Are we covered for R&D claims we prepared years ago?
On a claims made basis, the policy in force when the claim is made responds, so current cover is what matters rather than the policy in force when the claim was filed. Check for any specific R&D exclusion or condition, because insurers have been adding them, and disclose the history at renewal rather than after an enquiry starts.
Does professional indemnity cover a client's employee stealing from them?
Not the theft itself, which is the client's loss. It responds where the allegation is that your work should reasonably have detected it, which is a negligence claim about the quality of the bookkeeping or the reconciliation rather than about the fraud.
We are a bookkeeper, not a chartered accountant. Do we still need this?
Yes, and for most bookkeepers a licensing body requires it. Bookkeeping errors feed straight into VAT returns, payroll and management figures a client relies on, and clients rarely distinguish between the services when something goes wrong.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.