Is professional indemnity insurance
tax deductible?

Yes. Professional indemnity insurance premiums are an allowable business expense (GOV.UK). The policy protects the business against claims that your advice or work caused a client a loss, which is a cost of trading, and HMRC puts indemnity insurance premiums with professional fees on the return (SA103F notes).

For consultants, designers, accountants, surveyors and anyone who gives advice, professional indemnity insurance is often a condition of contracts or professional membership. It is an ordinary business insurance and allowable in full. The one quirk is where it goes on the return: HMRC groups it with professional fees rather than other insurance.

Is professional indemnity insurance tax deductible?

The HMRC rule

Professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not. The rule comes from Legal and financial costs, Self-employment (full) notes, SA103F.

GOV.UK lists professional indemnity insurance premiums among the allowable legal and financial costs (legal and financial costs), and says you can claim for any insurance policy for your business. The SA103F notes include indemnity insurance premiums in box 28, accountancy, legal and other professional fees (SA103F notes).

When you can claim it

• Annual professional indemnity insurance premiums.
• Insurance premium tax included in the premium.
• Excesses you pay when a claim is made against the business.
• Cyber and data protection cover bought for the business.

When you cannot

• The personal element of a policy that also covers personal risks.
• Premiums for a business you have not yet started, other than under the pre-trading rules.
• Life or income protection cover sold alongside, which is personal.
• Damages arising from fraud or dishonesty.

What to claim instead

If a policy bundles business and personal cover, ask the insurer for a breakdown and claim the business part. Personal protection policies, such as income protection, stay outside the business accounts.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For professional indemnity insurance, the deciding rule is accountants, solicitors and other professionals: professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not.

Worked example: an IT consultant

An IT consultant pays £480 a year for professional indemnity cover, required by her clients, and £160 for cyber cover. Both are allowable: £640. In a later year, a client claim is settled with a £1,000 excess paid by her, which is also allowable.

Who needs professional indemnity cover

Many professional bodies make it a condition of membership, including for accountants, solicitors, architects and surveyors, and many clients require it in contracts, especially for consultants, designers and IT contractors. Whether or not it is compulsory, it is allowable if bought for the business.

Claims and settlements

If a client sues you for a loss caused by your work, the policy excess you pay is allowable, and so are legal costs the policy does not cover. Damages you pay yourself for a business mistake are generally allowable as a trading cost. Payments arising from fraud or dishonesty, or fines, are not.

How much cover to buy

The level of cover is usually set by your professional body or your client contracts, commonly between £250,000 and several million pounds. A higher limit costs more, and the whole premium is allowable, whatever limit you choose, as long as it is bought for the business. If a client insists on a higher level for a single contract, the extra premium is part of the cost of doing that work.

Run-off cover

Professional indemnity policies are usually written on a claims-made basis, so you may need run-off cover after you stop trading. If it is paid before the business ends, it is part of the final period's expenses. If paid after cessation, relief may be available as a post-cessation expense against other income, within the rules for those.

Paying monthly

Many insurers let you pay by monthly instalments, often with an interest or credit charge. The instalments are the premium and are allowable as paid; the finance charge is allowable too, as a financial cost of the business. If you pay annually in advance, on traditional accounting you can spread the premium over the months it covers, though small premiums are usually deducted when paid.

Other business insurance

Public liability, employer's liability, business contents, stock and vehicle insurance are all allowable business insurance too, usually in other categories. Put professional indemnity in box 28 with professional fees, and the others in the categories that match them, such as premises costs or vehicle costs.

Where it goes

Professional indemnity insurance goes in box 28, accountancy, legal and other professional fees, of the full self-employment pages. In Making Tax Digital quarterly updates, use the professional fees category.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under accountancy, legal and other professional fees (SA103F box 28 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the policy schedule, the certificate and proof of payment for each year, and a note of what the policy covers. Where a policy bundles business and personal cover, keep the insurer’s breakdown of the premium.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Putting professional indemnity in the wrong box.
• Forgetting to claim excesses paid on claims.
• Including personal protection policies bundled with it.

Related expenses

This item sits in the accountancy, legal and other professional fees category, alongside accountancy fees, legal fees and tax investigation insurance. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.