What is Professional Indemnity Insurance?
Professional indemnity insurance provides cover for claims brought against the policyholder due to their professional negligence.
Professional Indemnity insurance protects a professional from financial loss, injury or damage arising from a mistake or failure by the professional to exercise the required level of skill. This may mean that an award is made in favour of a person who suffers a loss, damage or injury. A professional may also be held to be liable for a mistake even though there was no negligence.
Therefore, if a professional holds themselves out as having a special skill, which can be relied upon by another, they should consider Professional Indemnity Insurance as crucial.
Professional Indemnity Insurance, other than just being logical, is required for all members of ICB who are in the business of providing bookkeeping services. A professional bookkeeper is assisted in establishing their credibility through being able to state that they are insured.
PI insurance is not just about you protecting your client, but also yourself in the case of error.
Who is a Professional?
Anyone who provides advice and/or services of a skilful character, according to an established discipline, can be regarded as a 'professional' in a legal sense.
So 'professionals’ include not only those who are traditionally viewed as professionals, such as doctors and lawyers, but also computer consultants, advertising agents, acoustics consultants, trade associations, fund managers, bookkeepers and so on.
There are three reasons why practising bookkeepers should hold PI insurance:
- To cover against financial (civil law) claims made against a company's work. These would usually be made by a client and could be directed at any party involved in a project for which the company might be responsible. (Examples of claims could be for input error, consumer loss etc).
- Under the Tax Services Act 2009, all bookkeepers who are registered BAS Agent's are required to hold current PI Insurance. Tax Practitioners Board states Insurance required for agents.
- Some clients, especially many government bodies, insist on this cover being in place before contracts are signed. This is to provide recourse in the event of the above.
More detailed questions are best posed directly to a PI insurance consultant who can provide specific answers based on knowledge of your business.
Business Description of a Bookkeeper
The preferred policy by IME states that the Professional Business Practice of Bookkeeping services including but not limited to:
- Bookkeeping and Payroll (Calculating, Processing, Reconciling & Reporting)
- Administration including Completion of Regulatory documents (where authorised to do so)
- superannuation guarantee (including Charge forms)
- workers compensation
- data processing
- payment processing (subject to authorisation from your client)
- provision of information to third parties when authorised
- Accounting software (Installation, set-up, configuration, training and use)
- BAS Agent Services (as defined in the Tax Agent Services Act 2009)
- BAS preparation and advice
- GST advice
- Payroll services
- PAYG withholding calculations and advice
- Data File Management
Who is Covered?
All directors, employees and contractors whilst working on behalf of the insured business.
ICB Code of Conduct Requirements
An Associate, Member or Fellow may provide bookkeeping services to the public provided that:
- the member is qualified so to practice and holds a current practising certificate granted by the Institute
- the member holds a valid policy of professional indemnity insurance against claims for professional negligence together with insurance of not less than $250,000
TPB Requirements for BAS Agents
From the TPB website
The TPB notes the following:
- The primary purpose of the TPB's PI insurance requirements is to ensure those entities that are registered with the TPB have PI insurance cover for the tax agent and BAS services they provide.
- The TPB specifically considered the application of its PI insurance requirements to registered agents who have a low turnover. Turnover means the total amount of fees received by agents, excluding GST. While the TPB understands (through external consultation) that PI insurance may be an added expense, it understands that premiums areaffordable. Moreover, it is important for consumer protection that these agents maintain PI insurance that meets the TPB's requirements.
- An agent will meet the TPB's PI insurance requirements if the agent is adequately covered under a policy held by another registered agent entity, and that agent will not be required to hold their own policy.
- Agents may have a PI insurance policy for their business that covers non-tax agent or non-BAS services, other aspects of their business or which covers PI insurance requirements set by other regulatory bodies. In those circumstances, provided that the policy also covers the agent's provision of any tax agent or BAS service, the agent does not need to have a separate policy or multiple policies to meet the TPB's requirements.
- If an employee is providing in-house tax agent or BAS services to their employer, the employee will not be required to have PI insurance in order to meet the TPB's requirements.
- Agents who do not provide tax agent or BAS services for a fee or other reward will not be required to have PI insurance in order to meet the TPB's requirements.
- In relation to charging or receiving a fee for providing tax agent or BAS services, a tax agent or BAS service is taken to be provided for a fee even if the fee for the service is bundled with other fees for other services (for example, accounting services).
- Agents who only receive an honorarium (or honorary reward) for voluntary tax agent or BAS services will not be required to have PI insurance in order to meet the TPB's requirements.