Professional indemnity insurance for bookkeepers

Professional indemnity insurance for bookkeepers pays to defend you, and to settle the claim if needed, when a client says a mistake in your bookkeeping, payroll or VAT work cost them money. If you are an AAT licensed member it is a condition of your licence, with minimum limits linked to your fee income, and other professional bodies set their own rules.

What can go wrong in bookkeeping work?

When you supply a service in the course of a business, the law in England, Wales and Northern Ireland implies a term that you will carry it out with reasonable care and skill. Clients who think you fell short may ask you to pay for the result. Typical problems include:

• A VAT return that understates or overstates tax, which brings an HMRC assessment, interest or a penalty for the client.
• A payroll error that underpays staff or pension contributions, which the client then has to put right.
• A missed filing or payment date that triggers a late penalty.
• Paying a supplier invoice to a fraudster’s bank account after a fake change of details email.
• Client records lost or exposed after a laptop theft or email hack.

Example. Tom is a self employed bookkeeper with twenty small business clients. For a café client he codes a run of supplies at the wrong VAT rate for two years. HMRC checks the returns and asks the café for the extra tax, with interest and a penalty. The owner writes to Tom saying he should have spotted the error and asks him to pay. Tom tells his insurer before replying. What the policy pays, and whether it pays anything towards the penalty or the tax itself, depends on the wording and on the law, so he leaves the reply to the insurer and its solicitors.

Which covers fit a bookkeeper?

Cover	What it deals with	When to consider it
Professional indemnity	Claims that your work or advice was negligent and caused a client financial loss	Any paid bookkeeping, payroll or VAT work; a licence condition for AAT licensed members
Cyber	Hacking, data breach response and email fraud affecting your own systems	If you hold client logins, bank details or payroll data
Employers’ liability	Claims from your own staff for injury or illness at work	Required by law once you employ someone, with cover of at least £5 million, unless an exemption applies
Public liability	Injury to people or damage to property at your office or a client’s premises	If clients visit you or you work on site
Fee protection for clients	Your fees for dealing with HMRC enquiries for clients who join a scheme	If you want to offer clients cover for enquiry work

For the basics, see what professional indemnity insurance is. If you run an accountancy practice as well, professional indemnity insurance for accountants covers the extra points. If you also set up accounting software or systems for clients, see professional indemnity insurance for IT contractors.

What does AAT require of licensed members?

AAT says professional indemnity insurance is a mandatory requirement for all AAT licensed members. Its published rules include these points.

Point	AAT rule for licensed members
Sole traders	Minimum limit is the greater of 2.5 times gross fee income or £50,000
Partnerships and limited companies	Minimum limit is the greater of 2.5 times gross fee income or £100,000
Larger firms	Where gross fee income is over £400,000, the most cover required is £1,000,000
Excess	Set at an amount you can meet at all times
Past work	Cover must be fully retroactive
After you stop	AAT strongly recommends keeping cover for at least six years

AAT also tells members to report potential claims to their broker straight away and not to admit liability to a client unless the broker or insurer advises it. If you belong to another body, such as the Institute of Certified Bookkeepers or the Institute of Accountants and Bookkeepers, check that body’s own rules on professional indemnity insurance, because we do not restate them here.

How does anti money laundering supervision affect you?

HMRC’s guidance says it supervises accountancy service providers that are not supervised by a professional body, and lists the Institute of Certified Bookkeepers and the Institute of Accountants and Bookkeepers among the professional bodies that act as supervisors. It also says trading while not registered is a criminal offence that may lead to a penalty or prosecution. AAT’s licence conditions say licensed members providing accountancy services must be monitored by a supervisory authority such as AAT.

Insurers may ask who your supervisor is and whether you have had a supervisory visit. Our guides on choosing an AML supervisor and AML for bookkeeping and payroll clients explain more.

Where does client data come into it?

Under UK GDPR, anyone who suffers material or non material damage because the rules were broken has a right to compensation from the controller or processor. Bookkeepers hold bank details, payroll records and personal tax information, so a lost laptop or a hacked inbox can lead to claims and costs. The Information Commissioner’s Office says organisations, including sole traders, that use personal information need to pay a data protection fee unless they are exempt. A cyber policy is designed for your own losses after an attack, while a client’s claim that your mistake caused them a loss may fall under professional indemnity, depending on the wording.

How long after the work can a client claim?

In England and Wales, the Limitation Act 1980 gives six years for a claim in contract and six years for a claim in tort. Where negligence was not known about at first, a claim can be brought within three years of the starting date set by the Act if that is later, subject to an overriding limit of fifteen years from the act or omission said to be negligent. That is why AAT recommends keeping cover for six years after you stop, and why you should ask us about run off cover before you retire or sell your client list.

What drives the price of professional indemnity insurance for bookkeepers?

• Your gross fee income.
• The services you offer, such as bookkeeping, payroll, VAT returns, CIS returns or management accounts.
• The number and type of clients, including any in higher risk sectors.
• Whether you have access to client bank accounts or make payments for them.
• The limit of indemnity and the excess you choose.
• Your qualifications, professional body and supervisor.
• Any past claims, complaints or disciplinary cases.
• Whether you employ staff or use subcontractors.

What should you have ready when you ask for a quote?

1. Your trading name, start date and whether you are a sole trader, partnership or company.
2. Gross fee income for the last year and an estimate for the next.
3. A split of fee income by type of work.
4. Your professional body, membership type and AML supervisor.
5. The limit you need, including any minimum your body sets.
6. Details of any claim, complaint or circumstance that could lead to a claim.
7. Your current policy schedule and renewal date.

Ask us for a quote and we will look for cover that meets your body’s rules. You can also call 01795 841 310, Monday to Friday 9am to 5pm.

Frequently asked questions

Do I need professional indemnity insurance if I only do data entry?

If you are an AAT licensed member, the licence condition applies. Otherwise it depends on your body’s rules and your contracts, but a coding error can still cost a client money, so think about what a claim would cost you.

Is professional indemnity the same as fee protection?

No. Professional indemnity deals with claims against you, while fee protection pays your fees for handling a client’s HMRC enquiry. See fee protection for bookkeepers.

Will the policy pay a client’s HMRC penalty?

That depends on the policy wording and on whether the penalty is something the law allows to be recovered. Tell your insurer about the claim and let it decide what it will pay.

Do I need cover after I retire?

A client can still claim for years after the work, and AAT strongly recommends keeping cover for at least six years after you stop. Ask us about run off cover before your last renewal.

Can I complain if I disagree with my insurer?

Complain to the insurer first. The Financial Ombudsman Service can then look at complaints from small businesses with annual turnover under £6.5 million and either fewer than 50 employees or a balance sheet total under £5 million.

Sources

• AAT: Professional indemnity insurance
• AAT: Licence conditions
• GOV.UK: Money laundering regulations who needs to register
• legislation.gov.uk: 13
• GOV.UK: Employers liability insurance
• legislation.gov.uk: 82
• ICO: Data protection fee
• legislation.gov.uk: 5
• legislation.gov.uk: 2
• legislation.gov.uk: 14A

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 10 November 2026. Solar Protect is the trading name of Solar Insurance Services (Medway) Limited, authorised and regulated by the Financial Conduct Authority. This page is general information, not personal advice.