Insurance and indemnities in a consultancy agreement

A consultant is not covered by the client's employers' liability insurance, and the client is not covered by the consultant's professional indemnity insurance, which is why a consultancy agreement has to say what insurance each side holds and what the indemnities between them do. The indemnities most often copied into consultancy agreements are wide, uninsured and one-sided; the ones that work are specific, sit inside a cap the consultant's insurance supports, and leave out what the law will not allow. This page explains the law and the drafting. I draft consultancy and contractor agreements for a fixed fee of £595, delivered in five working days.

Who this is for

Businesses in England and Wales engaging consultants and contractors who want to know what protection the agreement gives them, and consultants asked to give indemnities who want to know what they are agreeing to.

What matters in insurance and indemnities

The insurance a consultant should hold and what it covers

A consultant giving advice or producing work should hold professional indemnity insurance at a level that reflects the exposure of the engagements (claims for negligent advice or defective work), public liability insurance where they attend clients' premises, and employers' liability insurance under the Employers' Liability (Compulsory Insurance) Act 1969 where they employ anyone; the agreement should state the covers and the minimum amounts, require evidence on request, and require the consultant to maintain the cover during the engagement and for a stated period after it, because professional indemnity policies cover claims made while the policy is in force rather than work done while it was.

The client's insurance and what it does not cover

The client's employers' liability policy covers its employees and may not cover a self-employed consultant injured on its premises, its professional indemnity policy covers its own advice to its clients and not the consultant's advice to it, and its public liability policy covers the public; the agreement should say that the consultant is responsible for their own injury and property except where caused by the client's negligence, that the client holds the insurance for its premises and its business, and, where the consultant will be treated by the client's insurers as a worker (some policies extend to labour-only contractors), that the client's cover applies to that extent.

Indemnities and what they do

An indemnity is a promise to pay for a defined loss on a pound-for-pound basis, without the paying party arguing about remoteness or mitigation, and a consultancy agreement should contain only the indemnities that have a defined purpose: the consultant's indemnity for third-party IP infringement claims arising from its work, for claims arising from its breach of confidentiality or data protection obligations, and for its own staff and substitutes; and the client's indemnity for claims arising from its instructions, the materials it supplied and the use it makes of the work. A general indemnity for all loss arising from any breach replaces the law of damages with an open cheque and the consultant's insurer will not cover it.

The liability cap and how it fits the insurance

The consultant's liability should be capped at a stated multiple of the fees for the engagement or a stated sum, chosen so that the consultant's professional indemnity cover supports it, with consequential loss excluded and the indemnities inside the cap unless a specific indemnity is agreed to sit outside it; the cap is tested for reasonableness under section 11 of the Unfair Contract Terms Act 1977 where the agreement is on the consultant's standard terms, and a cap that matches the insurance is the one a court accepts and the one the consultant can honour. The client's liability is usually limited to the fees and the specific indemnities it gives.

Status-related indemnities and the off-payroll rules

Clients ask consultants to indemnify them for any tax, national insurance or employment claims arising if the engagement is found to be employment, and the agreement should treat that carefully: where the client determines status under Chapter 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 the liability for a wrong determination sits with the client or the fee-payer by statute, and an indemnity from the consultant for the client's own determination is rarely fair or recoverable; where the consultant's company assesses status under Chapter 8, the consultant's company carries the tax risk already. The agreement should allocate the risk to the party that makes the determination, with an indemnity only for misinformation.

What cannot be excluded or indemnified against

Liability for death or personal injury caused by negligence cannot be excluded or limited under section 2 of the Unfair Contract Terms Act 1977, liability for fraud cannot be excluded, and an indemnity for a party's own criminal fines is unenforceable as contrary to public policy; the agreement should carve those out, should not purport to indemnify either party against its own fraud or wilful default, and should recognise that an indemnity for regulatory penalties under the Data Protection Act 2018 is of doubtful effect and that the right answer is for each party to carry its own compliance. The clauses should be read alongside the insurance, because an indemnity nobody is insured for is a promise nobody can keep.

What it costs

Consultancy or contractor agreement, £595. Drafted for your business. Five working days.

Template set for repeat use, £895. One master agreement plus a short-form schedule you can reuse for every engagement. Five working days.

Buying online forms the engagement on payment. The scope is what the consultancy and contractor agreements page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A clear, express assignment of intellectual property to your business
• Confidentiality provisions that protect your business information
• Restrictive covenants drafted at a scope a court will uphold
• Clear treatment of status, so the arrangement is not accidentally something else
• Payment, deliverables and termination provisions that match how you work
• A reusable structure, so the next engagement costs you nothing

What is not included

• Employment status determinations and off-payroll working assessments, which need your accountant
• Tax advice
• Disputes with a contractor you have already engaged
• Immigration and right to work compliance

Questions I am often asked

Our consultant has no professional indemnity insurance. Does that matter?

It matters if the consultant's advice or work could cause you loss, because a claim against an uninsured consultant is worth what the consultant has. The agreement requires cover at a stated level and evidence of it.

The client wants an indemnity for all losses arising from any breach. Should the consultant give it?

Not in that form. It replaces the law of damages with an open cheque and the consultant's insurer will not cover it. The agreement offers specific indemnities inside a cap the insurance supports.

Can the consultant indemnify us against off-payroll tax liabilities?

Only sensibly for misinformation. If your business makes the determination, the liability for getting it wrong is yours by statute, and an indemnity for your own determination is rarely fair or recoverable. The agreement allocates the risk to whoever decides.

Related guidance and services

• Consultancy and contractor agreements, £595, the service this page describes
• Contract review, £495
• Employment contracts and handbooks, £595
• Limiting liability in SaaS terms
• Notice and termination in a consultancy agreement

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.