Liability Insurance and VAT

Liability Insurance

Purchasing liability insurance is a personal decision but whether working in a client's home, a business or on a construction site, accidents can easily happen. It is worth noting that many consumers want to be assured that their local tradesman has insurance cover for accidents in case things go wrong. It therefore may be to your advantage to have liability insurance to bring that added peace of mind to potential customers.

If you do decide to purchase tradesman's liability insurance, here is a basic guide to the types of insurance available. Tradesman liability insurance is designed for small businesses and contractors and self-employed tradesmen and for the most part, tradesman insurance covers people like builders, plumbers, electricians or carpenters.

Public Liability Insurance:

Is designed to cover claims made against you as a result of damage or injury to a third party i.e. the customer. It is a fact of business life that things can go wrong, whether by human error or the failure of a piece of equipment. For a tradesman, a simple mishap could result in the flooding of someone's kitchen or even a fire in their home. Accidents of this scale are not common, but when they do happen they can be very, very expensive. A good tradesman insurance policy will protect you against the costs arising from such mishaps.

Employers' Liability Insurance:

If you have anyone working for you, the law states you must have employers' liability insurance. This covers you as a business for legal liability for any loss or injury caused to your staff in the course of their duties. 'Employees' usually includes anyone working for you, including contract workers and apprentices.

There are also some more specialised insurances such as:

Tools, Materials and Equipment: The tools of the trade can be expensive and if they are stolen you may not be able to work until they are replaced, so insuring all your vehicles, equipment and tools is a very good idea.

Legal Expenses: Provides cover for legal costs.

Personal Accident Insurance: Designed to provide replacement income if you are unable to work.

VAT

If you are VAT registered make sure you let your potential customers know. When supplying a quote show clearly the VAT amount and include your VAT number on all correspondence.

Although whether you are VAT registered is partly dependent upon your turnover, it is worth noting that our research shows that many customers have indicated that a company that is VAT registered has the appearance of being more professional. Remember, if you are VAT registered it is against the law for the customer not to pay VAT.

We would advise you to speak to a professional before deciding whether to become VAT registered but here are some things to think about:

• You are able to register for VAT even if your turnover is below the threshold, which at the moment is about £68,000.
• The benefits are being able to claim the VAT back on your business expenses that have had VAT charged on them.
• If your customers are VAT registered they can reclaim the VAT you charge to them, so you will be no more expensive. BUT if your customers are not VAT registered they won't be able to reclaim the VAT. If this is the case you have added VAT to your sales price and this will make you more expensive compared to tradesmen who are not registered
• When registered you will have to prepare quarterly VAT returns to pay the VAT you have charged to customers and be refunded for the VAT you have had to pay on your supplies and expenses. If you are a small business there are various schemes to make this easier, one of these is the flat rate scheme which simplifies the process but may mean you don't reclaim as much VAT.

We would suggest you take the time to seek expert advice on whether VAT registration makes sense for you.

Click on Dealing with Customers for some other hints and tips on ensuring you secure work and get good feedback from your customers