The short answer: what a UK construction business actually needs
Employers' liability and public liability are the two you will be asked for on almost every job, and employers' liability is the only one of the pair that the law forces on you. Under the Employers' Liability (Compulsory Insurance) Act 1969 you must hold cover as soon as you employ anyone, and the Employers' Liability (Compulsory Insurance) Regulations 1998 set the minimum at £5 million for any one occurrence. Most policies are written at £10 million because that is what the market offers as standard.
The penalties are not decorative. HSE can fine you up to £2,500 for every day you trade without the right cover, and up to £1,000 for failing to display the certificate or refusing to show it to an inspector, per HSE's brief guide for employers (HSE40). On a construction site that certificate gets asked for more often than almost any other document.
Public liability sits differently. No statute makes a general builder buy it. Contracts do. Try getting through a main contractor's gate, or onto an approved-supplier list, without a current public liability certificate and you will find out quickly how little the legal distinction matters in practice.
Beyond those two, the rest of the list is driven by what you do rather than what you are. Design something and professional indemnity enters the picture. Build something under a JCT contract and someone has to insure the works. Own plant, own a yard, run vans, and each of those has its own cover. If you want the wider picture of how a contracting business is structured for tax and compliance, our construction and CIS accountants page covers the accounting side of the same question.
Why your insurance decides which contracts you are allowed to price
Main contractors screen insurance before they screen price, and they do it through prequalification. The Common Assessment Standard, developed by Build UK and certified through bodies such as Constructionline and the SSIP schemes, is the question set most of the industry now runs on. It asks whether you hold employers' liability, public liability and, where you provide design or consultancy, professional indemnity, and it asks for the certificates as evidence.
That has a blunt commercial consequence. A subcontractor whose public liability sits below the figure stated in the tender documents is not negotiated with, it is filtered out before anyone reads the price. Every year we watch firms lose the step up from domestic work to commercial work for exactly that reason, and it is rarely because they could not afford the cover. It is because nobody told them the requirement existed until the deadline had passed.
The useful way to think about it is two separate questions. What does somebody else insist I carry, and what would I want to carry even if nobody insisted? They overlap less than most people expect.
The seven covers, in plain English
Each cover below does one job, and the difference between them matters more than the names suggest. Radar Insurance is our recommended construction insurance partner, so each entry links to their page on that cover if you want the detail from the people who actually arrange it.
Public liability
Covers claims from third parties for injury or damage to their property caused by your work: the passer-by hurt outside the hoarding, the neighbouring wall cracked by your excavation, the client's floor ruined by a burst pipe. It is the cover main contractors ask for first and the one that decides whether you get through the gate.
Employers' liability
Covers claims from your own people for injury or illness caused by working for you. The £5 million statutory minimum applies to any one occurrence, the certificate must be available to staff and to HSE inspectors, and labour-only subcontractors are usually treated as employees for this purpose even though they invoice you.
Professional indemnity
Covers claims that your advice, design or specification was negligent and cost somebody money. Plenty of contractors assume it only applies to architects and engineers. It applies to you the moment you take on a contractor's designed portion, design your own temporary works, or tell a client which build-up to use.
Contract works, also called contractors all risk
Covers the job itself while it is being built: the partly finished works, the materials on site and often the temporary works around them. Under a JCT contract the insurance option chosen decides whether the contractor or the employer buys the joint names policy, and the obligation runs to practical completion.
Plant and tools
Covers owned and hired-in plant, machinery and small tools against theft and damage, including tools taken overnight from a locked van. It matters most for hired-in kit, because standard plant hire terms make the hirer responsible for loss or damage while the plant is on hire.
Buildings
Covers premises you own or are responsible for: the yard, the unit, the office, plus loss of rent and property owners' liability where you let space to someone else. A mortgage or a commercial lease will normally make it a condition rather than a choice.
Fleet
Motor cover for vans, tippers, trucks and plant vehicles under one policy instead of a drawer full of separate certificates. Third-party motor insurance is compulsory for any vehicle used on a public road, and goods in transit is a separate question from the vehicle itself.
The order most construction firms sort cover in
Cover tends to arrive in the same sequence, driven by what forces the issue rather than by what is most useful. Statute first, because HSE fines start on day one. Then whatever the main contractor's prequalification questionnaire demands, because that is the gate between you and the work. Then the building contract, which decides who insures the works. Only after all of that do most firms get round to the covers nobody is chasing them for, which is exactly the wrong way round for anyone who has just had a van emptied.
Read the chart the other way round and it becomes a planning tool. Anything with an arrow pointing at it has a deadline attached to it, set by someone else. Anything without one is the cover you will only think about the morning after it was needed.
The clauses that quietly change what you need
Three things catch out otherwise well-run construction businesses, and all three live in paperwork rather than on site.
Labour-only subcontractors and employers' liability
The question is not what you call someone or how they are paid, it is who directs the work. A labour-only subcontractor turning up to use your materials, your tools and your method is generally treated as an employee for the purposes of the 1969 Act, even though they invoice you and sit on your CIS return. A genuine bona fide subcontractor supplying their own labour, plant and materials, carrying their own insurance, normally is not. Most construction payrolls contain both, mixed together, which is why this is worth an hour of somebody's attention rather than an assumption.
JCT insurance options
A building contract does not leave works insurance to chance. As JCT's own guidance on insurance and JCT contracts sets out, Option A puts the joint names all risks policy on the contractor, Option B puts it on the employer, and Option C is the one used for work in or extending existing structures, where the employer insures both the existing building and the works. Option C is where refurbishment contractors get burnt, because the existing structure belongs to somebody else and the wording decides who carries the loss when a fire starts in it.
Hired-in plant
Plant hire terms are stricter than most people realise. Under the widely used Construction Plant-hire Association model conditions, the hirer makes good all loss or damage to the plant whatever the cause, fair wear and tear excepted, and hire charges continue at idle-time rates until a settlement is agreed. So the exposure is not just the value of the machine. It is the machine plus the meter still running while everyone argues.
Here is how the three common approaches actually compare when insurance requirements meet the numbers:
| What you need | DIY / software | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Insurance cost built into your tender rates, not absorbed | ✗ Not modelled | ● If you ask | ✓ In the overhead recovery |
| Labour-only versus bona fide subcontractor split on your CIS return | ✗ | ● CIS filed, status untested | ✓ Reviewed at onboarding |
| Figures ready for a prequalification questionnaire | ✗ | ✗ Accounts filed months later | ✓ Management figures monthly |
| Domestic reverse charge VAT handled on subcontract invoices | ● Depends on setup | ● | ✓ Set up and checked |
| Gross payment status application and the tests behind it | ✗ | ● | ✓ £400 one-off |
| Available Mon to Sat when a tender deadline lands on a Friday | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why contractors stepping up from domestic work to framework and main contractor work tend to move to a specialist.
Where insurance meets your accounts, CIS and tax
Premiums paid wholly and exclusively for the business are an allowable expense against trading profit, so they reduce Corporation Tax for a limited company and Income Tax plus Class 4 NIC for a sole trader, in line with GOV.UK guidance on allowable business expenses. That part is simple and rarely goes wrong.
What goes wrong is pricing. Insurance is an overhead, and overheads only get recovered if they are inside your rates. A subcontractor who lifts public liability to meet a framework requirement and does not revisit the rates has just cut margin on every job for the next twelve months without noticing, because the extra premium is a fixed cost spread across a variable turnover. We rebuild that recovery calculation for contractors more often than almost any other piece of work.
Two smaller points are worth knowing. Claim proceeds that replace lost trading income are generally taxable, while proceeds that replace a capital asset are dealt with under the capital allowances and capital gains rules instead, so the accounting treatment follows what the money is replacing. And insurance sits alongside, not inside, the Construction Industry Scheme: CIS deductions come off the labour element of a subcontractor payment and have nothing to do with whether either party is insured. If the CIS side of your business needs a look, our CIS and construction accounting service is where that starts, and our guide on CIS gross payment status covers the other thing that decides which contracts you can realistically take on.
What this means for you: what to do before your next tender
Six things, in order, and none of them take long.
- Find your certificates and check the dates. Expired certificates on file are the single most common reason a prequalification submission bounces.
- Read the insurance clause in the tender documents before you price. The required limits are stated there. Pricing first and reading second is how firms win work they cannot legally start.
- Test your subcontractor list. Split labour-only from bona fide and confirm your employers' liability reflects the real position rather than the invoicing position.
- Check who insures the works. On a JCT job, find the insurance option before you mobilise, especially on refurbishment work under Option C.
- Look at your hire agreements. If you hire plant, you are almost certainly carrying the loss and the idle-time charges. Make sure something covers that.
- Rebuild your overhead recovery. Every premium you pay needs to sit inside a rate somewhere, or it is coming out of profit.
None of this is complicated work. It is sequencing, and it is the difference between being on the approved list and being told, politely, that the framework is full. LOYALS is a King's Cross firm of accountants and business consultants that runs CIS, reverse-charge VAT and subcontractor payroll for London contractors, and you can check where your rates and your cover sit in a free 15-minute call.