Professional indemnity insurance

Conditions

• Professional indemnity insurance premiums are explicitly listed as an allowable expense in GOV.UK's self-employed expenses guidance (updated November 2024). HMRC's Business Income Manual (BIM45515) confirms that 'premiums on an indemnity policy providing cover for professional negligence are allowable as a deduction.'
• PI insurance is often contractually required — many clients, particularly in financial services, legal, consulting, and creative professions, require contractors and suppliers to hold a minimum level of cover as a condition of engagement. Whether contractually required or voluntarily taken out, the premium is allowable provided the cover is wholly for the business.
• Many regulated professions are legally required to maintain PI cover. Solicitors, architects, financial advisers, accountants, and engineers (among others) must hold a minimum level of cover specified by their professional regulator. The cost is allowable regardless of whether PI insurance is a legal obligation or a commercial decision.
• Run-off cover — PI insurance taken out after a business ceases trading to cover claims that may arise from work done while it was operating — is also allowable. The policy continues to indemnify against professional negligence from past business activity, and the premium is a legitimate cost of that activity.
• For a limited company, PI premiums paid by the company are an allowable corporation tax deduction. Where the policy covers the professional liability of a director or employee personally (rather than the company entity itself), the premium is still allowable for the company because the cover supports the company's trade (BIM45520).
• Employees generally cannot claim PI insurance premiums as a personal tax deduction. In most employment situations the employer carries PI cover for the business. An employee in a regulated profession who is personally required to maintain their own cover would need to satisfy the strict 'wholly, exclusively and necessarily' test applied to employee expenses — a high bar in practice.

Common mistakes

• Confusing PI insurance with public liability insurance — they cover different risks. PI covers claims from clients alleging your professional work caused them a financial loss; public liability covers injury or property damage to third parties arising from your business activities.
• Treating run-off cover premiums as a non-allowable post-trading cost — run-off cover relates to work done during the trading period and the premium remains allowable.
• Underestimating the required cover level — many client contracts specify a minimum indemnity limit; check contract requirements against the policy limit before renewing.

What to keep

• Policy schedule showing the policyholder, indemnity limit, period of cover, and premium.
• Premium invoices or payment records.

Real-world example

A freelance management consultant is required by her main client contract to hold £1 million PI cover. She pays £1,200 per year for the policy. The premium is allowable in full — it is wholly incurred for the business, covering the risk of a claim arising from advice given to the client.

Frequently asked

Related allowances