As I am doing the books for free for my first and only client (I'm not confident enough to charge at this early stage and it is a friend of mine so Im happy to gain the experience) can I get away without paying any PI insurance until I start to take on paying clients. I will be sending my friend a letter for signature stating that as I am doing her books for free we are not entering into and contract and that she is solely responsible for the accuracy and content of the information I provide her with. I don't want any expense at this stage, hence not wanting to take out any insurance. I have of course paid for my MLR with HMRC but have not yet registered as self-employed because I am not actually trading or earning any income from doing this voluntary bookkeeping. I have informed AAT that I am working on a voluntary basis which they are fine with.
Anyway, in a nut shell is PI insurance required or not at this stage.
No-one's going to come on here and say definitively that the letter you describe will be absolutely water-tight and will protect you from any claims your client may make if things turn nasty. But it goes a long way and she'd have an uphill struggle to make you liable for any mistakes that cause her loss or damage.
You have two areas of potential liability to deal with: contract and negligence. Contract hinges on "consideration," which is, basically, payment. Make sure your letter states that you are keeping the books for her without intending to create a contractual relationship and with no expectation of payment or any other form of compensation. That means no secret deals where you get your hair done and your nails painted for free, I'm afraid (I'm assuming your client is the beautician you have referred to earlier, but if not, no secret understanding of any kind - no free frocks, no free meals in restaurants, no free websites, etc.). Because if there is a breakdown in your relationship due to some mistake on your part, your client could easily say that such secret deals are evidence of a contract ... and she'd probably be right.
I notice that your beautician friend asked you to help her after she learnt that you had qualified (congratulations btw). That suggests she wants to make use of your specialist knowledge and skill. As an expert, you are expected, at law, to provide a higher level of accounting competence than would be expected of an ordinary person. You have to try to negate this - or at least, to reduce the level of responsibility you have taken on, given that you are, in fact, qualified. So state in the letter that while you will prepare the books to the best of your abilities, you do not offer a professional service and are not to be relied upon as a professional bookkeeper.
Conclude the letter by making her acknowledge that she accepts full responsibility for whatever use she makes of the books you produce and for their accuracy and that you will not be liable to her or to any other person, including HMRC, for any loss or damage arising out of such use.
Hope this helps
Final thoughts: use everyday language - don't try to use technical language because that could work against you. Begin the letter by explaining that its purpose is to minimise your liability to your client so far as the lawa allows, and however that liability might arise, and it is to be interpreted in that way. Don't refer to your client as "client" because that implies a business relationship. Read it through carefully, and if you're not sure you have covered everything, say it again in another way. It doesn't matter that you repeat yourself in order to get everything you need to say in.
-- Edited by ilsm on Sunday 22nd of December 2013 11:59:52 AM
On the other hand I could pay for the insurance for a year which would allow me to take treatments in kind from my friend. I can justify this with HMRC as being offset against my AAT subscriptions and the cost of the insurance and the cost of the MLR registration provided the treatments don't exceed this value which they won't.
I have not registered as self-employed with HMRC as I was told that because I am working on a voluntary basis this will not be required. Does anyone have any comments on this?
this may help as a starter insurance for you-I use them and took their basic insurance which was around £50 annually- I have increased it now since becoming more accountant than bookkeeper and to keep within the rules of AAT but it may get you started as a safe option
OK ... professional indemnity insurance is supposed to insure people who are carrying on a business from the consequences of negligence or breach of contract while conducting that business. I'm not sure how insurers would view a non-commercial, non-professional relationship (but you could always ask ... never any harm in asking). If you are running a business, you would be unwise to operate without adequate cover. If you are not in business and can avoid contractual obligations and liability for negligence then you have no need for cover, and not even AAT can make you get it, even if it is available. But to make sure you are always free of those obligations and duties, you must walk along a tightrope with no safety net.
The easiest solution is to accept you will be in business, but that means you have to deal with AAT, and I'm not sure how you could do that. (Silly question, perhaps, but do you have to be a member to do their exams?)
