Professional indemnity insurance for IT contractors

Professional indemnity insurance for IT contractors pays to defend you, and to settle the claim if needed, when a client says your code, configuration, advice or project work was negligent and cost them money. Agencies and end clients may ask for it in the contract, and one claim for lost sales or data recovery can be more than a one person company could pay from its own funds.

What can go wrong in IT contract 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. Most claims against IT contractors start with a client saying you fell short of that standard and that they lost money as a result.

• A data migration overwrites or drops records, and the client pays staff to rebuild them.
• A bug in a pricing or payroll change sends out wrong figures before anyone notices.
• Cloud permissions you set up leave a storage area open, exposing personal data.
• Your architecture advice turns out to be unsuitable and the client pays to rebuild.
• A missed go live date triggers penalties under the client’s own contracts.
• Code you reuse from an earlier job is said to belong to someone else.

Example. Priya contracts through her own limited company and is hired by an online retailer to move its order database to a new platform. A script she wrote runs against the live database instead of the copy, and three days of orders are overwritten. The retailer’s solicitor writes to her company saying the work was negligent and claiming the cost of rebuilding the records and the sales lost while the shop was offline. With professional indemnity cover that includes this type of work, Priya passes the letter to her insurer straight away and does not admit fault. The insurer then deals with the defence and any settlement, subject to the policy wording and the excess.

Which covers fit an IT contractor?

Professional indemnity is the core cover for anyone paid for technical work or advice, but it does not deal with every risk. This table sets out how the main covers split.

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 development, support, consultancy or project work
Cyber	Your own systems being attacked, data breach response and related claims	If you hold client data or log in to client systems
Public liability	Injury to people or damage to property, for example at a client’s office	If you work on client premises or install equipment
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
Tax investigation	Accountant’s fees in an HMRC enquiry, including off payroll questions	If you contract through your own limited company
Office and equipment	Loss or theft of laptops and kit	If replacing your equipment would stop you working

For more on the core cover, read what professional indemnity insurance is and how cyber insurance works.

Will agencies and end clients ask for it?

Many contracts include an insurance clause, and agencies and end clients may ask you to hold professional indemnity cover at a set limit, sometimes with public liability and employers’ liability as well. Read three parts of the contract before you sign: the insurance clause, any clause where you agree to indemnify the client, and any limit on your liability. If you agree to pay for losses without a cap, tell us before you sign, because a policy may not follow every promise a contract makes.

Your insurance is a separate question from your tax position. Under the off payroll working rules, a medium or large client decides the employment status of a contractor working through an intermediary such as a limited company, while for a small client outside the public sector the contractor’s own company decides. Our guide to the IR35 off payroll rules explains more, and tax investigation insurance for contractors pays accountant’s fees if HMRC opens an enquiry.

Where does data protection 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. A processor is liable only where it did not comply with the duties placed on processors or acted outside or against the controller’s lawful instructions. If you work on systems that hold personal data, a breach linked to your work could lead to a claim from the client, and the client may face claims from the people whose data was exposed.

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. The National Cyber Security Centre’s small business guide covers securing email, securing important online accounts, protecting devices, backing up data and spotting cyber attacks. Insurers may ask about each of these when you apply.

How long after a job 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, both from the date the cause of action accrued. For negligence where the damage was not known 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.

So a problem in code you wrote this year could produce a letter several years from now. Check whether your policy responds to claims made during the policy period. If it does, you need cover in force when the claim arrives, not just when you did the work, so ask us about run off cover before you stop contracting or move into a permanent role.

What drives the price of professional indemnity insurance for IT contractors?

• Your fee income and how much of it comes from each client.
• The type of work, such as development, infrastructure, security testing, support or advice.
• Your clients’ sectors, as work for finance, health or public bodies can carry larger potential losses.
• Where your clients are based, especially if any are in the United States or Canada.
• The limit of indemnity you choose and whether it applies to each claim or in total for the year.
• The excess you are willing to carry.
• Any past claims or complaints.
• The contract terms you accept, especially uncapped liability.
• Whether you use subcontractors and how you check their work.

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

1. Your company name, start date and whether you trade as a sole trader or limited company.
2. Last year’s fee income and an estimate for the next twelve months.
3. A short description of the work you do and the technologies you use.
4. The sectors and countries your clients are in.
5. Any insurance clause from a current or upcoming contract, with the limit asked for.
6. Details of any claim, complaint or dispute, even if nothing was paid.
7. Your current policy schedule if you already hold cover.

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

What if you disagree with how your insurer handles a claim?

Complain to the insurer first. If you are not happy with the answer, the Financial Ombudsman Service can 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. Check your own figures against those limits before you complain.

Frequently asked questions

Do I need professional indemnity insurance if I work inside IR35?

Your tax status does not stop a client claiming that your work was negligent. Some agencies still ask for cover on contracts inside IR35, so check the contract and tell us how you are engaged.

Does professional indemnity cover a hack on my own laptop?

That depends on the policy wording. A cyber policy is designed for losses to your own business from an attack, while a client’s claim that your work caused their breach may fall under professional indemnity. We can explain the split for the policies we find.

How much cover should I choose?

Start with any limit your contracts set, then think about the largest loss a client could suffer from a mistake in your work. Our guide on insurance for self employed consultants covers similar choices.

Do I need employers’ liability insurance as a one person company?

You need it once you become an employer, unless an exemption applies, such as employing only close relatives. Read our page on employers’ liability requirements before you take on staff.

Is cover for an agency different from cover for a marketing firm?

The cover works the same way, but insurers ask about different risks. See professional indemnity insurance for marketing agencies if you also build websites or run campaigns.

Sources

• legislation.gov.uk: 13
• GOV.UK: Employers liability insurance
• GOV.UK: Understanding off payroll working ir35
• legislation.gov.uk: 82
• ICO: Data protection fee
• NCSC: Small business guide
• legislation.gov.uk: 5
• legislation.gov.uk: 2
• legislation.gov.uk: 14A
• legislation.gov.uk: 14B

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.