Two types of business insurance are legally required in the UK:
- employers’ liability insurance (usually required if you employ anyone), with at least £5 million cover under the Employers’ Liability (Compulsory Insurance) Act 1969
- commercial motor insurance for any vehicle used for business under the Road Traffic Act 1988
Other policies aren’t required by law but may be required by contracts, regulators, or professional bodies.
Understanding the difference between legally required, contractually required, and strongly recommended business insurance can help you stay compliant and avoid gaps in your protection. Here’s everything you need to know.
Which business insurance is legally required in the UK?
Employers’ liability insurance
Employers’ liability insurance is compulsory for almost all UK businesses that employ staff. It’s a legal requirement under the Employers’ Liability (Compulsory Insurance) Act 1969, and you must hold a minimum of £5 million in cover.
This policy covers compensation claims from employees who are injured or become ill as a result of their work.
Who needs it:
- limited companies with one or more employees
- sole traders who take on staff, apprentices, or volunteers
- partnerships with employees outside of the partnership
Who may be exempt:
- sole traders with no employees
- family businesses that aren’t incorporated as a limited company, or where all employees are close relatives (spouse, civil partner, sibling, child, parent, grandparent, grandchild, stepparent, stepchild, or half-sibling)
Penalties for non-compliance: businesses that fail to hold the required employers’ liability cover can be fined up to £2,500 each day.
Your certificate of employers’ liability insurance must be displayed prominently at your workplace – or made available to employees electronically.
Commercial motor insurance
Any vehicle used for business purposes must be covered by commercial motor insurance. This is a legal requirement under the Road Traffic Act 1988. Standard personal car insurance policies can cover some limited types of business use:
- class 1: standard business driving for the main policyholder (traveling between multiple sites or client meetings)
- class 2: extends class 1 coverage to include additional named drivers
- class 3: premium business cover for high-mileage, non-fixed travel, commercial sales/visiting, and carrying light business samples or goods
But if the above doesn’t fit your business, you’ll likely need to take out a full commercial motor insurance policy.
Commercial motor insurance applies to:
- vans and cars used to visit clients or travel between sites
- vehicles used to transport goods or tools
- fleet vehicles operated by employees
Who needs it:
- tradespeople using vehicles to travel to jobs
- couriers and delivery businesses
- any business owner who drives for work purposes (who aren’t covered by their personal car insurance policy)
Note: driving from home to a single, fixed place of work is usually classified as commuting – not business use. If you’re unsure whether your usage requires commercial cover, check directly with your insurer.
What insurance is often “effectively required” (by contracts or regulators)?
While the following policies aren’t required by law, they’re often effectively essential for most businesses – either because clients demand them, contracts require them, or regulators expect them.
Public liability insurance (widely required by clients, landlords, and local authorities)
Public liability insurance isn’t a legal requirement, but it’s one of the most widely held policies in the UK. It helps protect your business if a client or member of the public is injured, becomes ill, or has their property damaged because of your work. It can cover legal fees and compensation up to your policy limit.
Many businesses treat public liability as non-negotiable because:
- local authorities and public sector contracts typically require it (often at £5 million or £10 million cover)
- landlords may require it before signing a commercial lease
- trade associations and professional bodies often make it a condition of membership
Common cover limits are £1 million and £2 million, though higher limits are available.
Note: public liability doesn’t cover injuries to your employees – that’s what employers’ liability is for. And it won’t cover claims arising from professional advice or mistakes – that’s where professional indemnity comes in.
Professional indemnity insurance required in regulated professions and common in contracts)
Professional indemnity insurance helps protect your business against claims that your advice, service, or professional work caused a client financial loss. It isn’t required by law for most businesses, but it’s a regulatory requirement in certain professions – and a contractual requirement in many more.
Regulated professions that require professional indemnity insurance include:
- solicitors (regulated by the Solicitors Regulation Authority)
- architects (regulated by the Architects Registration Board)
- financial advisers (regulated by the Financial Conduct Authority)
- chartered accountants (regulated by their professional body)
Even if your profession isn’t regulated, some clients may insist on seeing proof of professional indemnity cover before working with you.
Read more: How to find the best business insurance for you
What’s the difference between legal and contractual requirements?
A legal requirement means you’re breaking the law if you don’t have the cover in place. A contractual requirement means a client, landlord, or other party has made insurance a condition of doing business with you.
| Type | Example | Consequence if you don’t comply |
| Legal | Employers’ liability | Daily fines from £2,500 |
| Legal | Commercial motor | Driving offence; vehicle uninsured for business use |
| Contractual | Public liability for a building contract | You lose the contract |
| Regulatory | Professional indemnity for solicitors | Loss of licence to practise |
| Recommended | Business contents insurance | Uninsured financial loss |
Read more: Don’t forget these 4 legal obligations for your small business
What cover is recommended for your business type?
Beyond legally and contractually required policies, your available cover depends on your trade and how you work. An advised broker can recommend types of cover specific for your business, but below are some common types of cover available.
Tradespeople (builders, electricians, plumbers)
- public liability insurance – useful if you work on client premises
- employers’ liability insurance – required if you employ anyone
- tool insurance – covers theft or damage to your equipment
- commercial motor insurance – required for any work vehicles
Consultants and professional services
- professional indemnity insurance – helps protect against advice-related claims
- public liability insurance – often required by clients
- cyber insurance – recommended if you handle client data
Retailers and shop owners
- public liability insurance – for customers visiting your premises
- product liability insurance – if you sell physical goods
- business contents insurance – helps cover stock, fixtures, and equipment
- employers’ liability insurance – if you have staff
Landlords
- landlord insurance – helps cover buildings, contents, and loss of rent
- public liability insurance – in case a tenant or visitor is injured on your property
- employers’ liability insurance – if you employ a property manager or maintenance staff
For whatever business you have, there are many other covers available that you may need. These will be explained and offered by brokers or providers when you get a quote. A non-advised broker or provider won’t recommend which cover to buy – but they will give information so you can make your own informed decision.
Insurance for limited companies vs sole traders: is there a difference?
It’s not just about the work you do – your legal structure can affect which insurance policies apply to you.
Limited companies are separate legal entities, meaning they can be sued directly and hold primary financial liability for their actions. Under the protection of limited liability, individual directors are generally shielded from these company liabilities, unless they commit a specific breach of duty or wrongdoing (for which directors and officers (D&O) insurance can provide personal protection). Some key types of cover limited companies may need include:
- employers’ liability insurance (if they have employees)
- public liability insurance (especially if working with clients or in public spaces)
- professional indemnity insurance (if offering professional services)
Sole traders act as individuals and face much more liability than limited company owners. This means your personal assets can be at risk if someone makes a claim against your business. While you may be exempt from the employers’ liability requirement (if you have no staff or only employ close family), public liability insurance can be considered for anyone working with clients or the public.
Professional indemnity insurance can also be useful if you offer professional services.
Remember, there are many other covers available that you may need. These will be explained and offered by brokers or providers when you get a quote.
Read more: Sole trader vs limited company – what’s the difference
How to verify your insurer is FCA-authorised
Any insurer or insurance broker selling business insurance in the UK must be authorised and regulated by the Financial Conduct Authority (FCA). Before you buy a policy, it’s worth checking that your provider is properly registered.
- Check the Financial Conduct Authority (FCA) register
- Search for the firm name or reference number
- Confirm the status is “authorised”
- Use only the contact details listed on the register to avoid scams
Learn more about the cover mentioned in this article:
- employers’ liability insurance
- public liability insurance
- professional indemnity insurance
- cyber insurance
- tools insurance
- business contents insurance
Always check your policy documents to confirm what’s covered for your specific business. Consider speaking to a qualified adviser where needed.
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Frequently asked questions
Does a self-employed person need business insurance?
Self-employed people aren’t legally required to have business insurance unless they employ staff (in which case employers’ liability is compulsory) or use a vehicle for work (which requires commercial motor insurance). That said, insurance such as public liability and professional indemnity can be helpful and may be required by some clients.
Do home-based businesses need business insurance?
Most standard home insurance policies don’t cover business activities, equipment, or liability arising from your work. They can cover some limited areas, such as:
- clerical office work – writing, computer-based work, phone calls, and administrative tasks
- basic home office furniture – desks, chairs, and basic filing cabinets
- personal business equipment (low value) – personally owned computers or printers could be covered by your home contents policy up to a specified “office equipment” limit (often between £1,500- £5,000 depending on the insurer)
But if you run a business from home – even part-time – consider a home-based business insurance policy. This can cover business equipment, public liability if clients visit your home, and professional indemnity if you offer advice or services.
What happens if you don’t have employers’ liability insurance?
Operating without the required employers’ liability insurance is illegal and can result in fines of up to £2,500 per day. You could also face significant compensation costs if an employee is injured or becomes ill due to their work, with no insurer to cover those costs.
Employers’ liability insurance is not legally required for:
- sole traders with no employees
- family businesses that aren’t incorporated as a limited company, or where all employees are close relatives (spouse, civil partner, sibling, child, parent, grandparent, grandchild, stepparent, stepchild, or half-sibling)
Is business insurance tax deductible in the UK?
Yes. HMRC generally treats business insurance premiums as an allowable business expense, meaning you can deduct them from your taxable profit – so make sure to keep your policy documents and receipts. And it’s always worth speaking with an accountant to confirm what applies to your specific circumstances.
How is a contractual insurance requirement different from a legal one?
A legal requirement is set by legislation – meaning you must comply or face fines and penalties. A contractual requirement is set by a client, landlord, or trade body as a condition of doing business together.
For example, a building contractor may legally only need employers’ liability insurance, but their client might contractually require £5 million of public liability cover before work begins. Both matter, as failing to meet a contractual requirement could cost you a contract – even if you’re not breaking the law.
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