You may recall I wrote last week about there being an apparent majority of recruitment consultants who don’t actually know what they’re doing, much less understand what (or rather who) it is they’re selling, Sadly that also seems to be true of contractors themselves.

Now obviously I don’t mean the things they know about their chosen field; if you aren’t pretty damned good at what you do you won’t last long as a freelance after all. Clients hire freelances to add instant value and high levels of expertise at the drop of a hat (or a well-written contract, anyway) and I’ve met very few indeed who don’t deliver exactly that.

No, I’m talking about the other side of the freelance business, running the business itself.

Perhaps I’m biased since I’ve been doing this for quite a while now, but I am continually surprised at the kinds of questions you keep being asked. It’s not like the information isn’t out there. If you can’t face trawling through the HMRC labyrinth to find things – which is something I try to avoid as much as possible – there are many very good and authoritative guides on the web, not least the PCG’s Guide to Freelancing. So why don’t people read them?

For example, in the last week I’ve seen examples of all five of the obligatory dumb questions…

The “My accountant can’t count” question. Someone who has painstakingly worked out his taxes and thinks he should be getting more than his accountant says he should. Usually they’ve either forgotten something trivial, like Employer NICs, or they’ve got the basic arithmetic wrong. That’s why you use accountants, so why try and double guess them?

The “Why is my accountant so expensive” question. These are the guys who begrudge paying a tiny percentage of their gross for a professional service. Try as you might, you will never persuade them that if an accountant actually costs you money, get a new one. He’s there to make sure you get the best return on your gross after all. Unless you tell him to do something totally silly of course.

The “How can I get to keep 95% of my gross” question. Limited to those who have either fallen for the sales blurb or don’t actually think living and working in the UK means you have to pay UK taxes (aka “Doing a Green”…)

The “A contract is just a piece of paper” question. The guy who’s signed up to a contract but then discovers he hasn’t got a notice period (which is a good thing, by the way, not that they’ll believe you about that) or has to carry PI insurance or something else he doesn’t like. Followed by plaintive cries of “What if I simply don’t bother, will the agency put a hit man on to me”. If it’s in the contract and you signed it, it’s legally binding; why is that so hard to understand? Try reading and negotiating before you sign it next time

And finally the “What expenses can I claim” question. Comes in many forms this one. Why can’t I claim travel after 24 months (you can, it’s just that it’s taxable). Can I have a 52” plasma screen monitor for my laptop (sadly it’s too big for the study, I’ll just have to keep it in the living room). And so on..

And why does this suddenly matter? Blame IR35, as usual.

If, as seems increasingly likely, whatever replaces it is based on proving you’re in business – just like Dim Prawn always said was the case (and then promptly forgot about saying it) – then understanding the rules of business would seem to be a pretty good starter for ten.

Which means, sadly, having to ask questions…

Alan Watts can found at LinkedIn.
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Image: The Questioning Roboto by matt.hutchinson

Professional advisers, including online accountants, have witnessed a massive rise in the number of negligence claims filed against them since the start of the recession.

Research by Syscap showed a rise of 125% in the number of High Court negligence cases launched between 2008 and 2009. In 2008, for example, there were 80 high court negligence claims against law firms. By 2009, the number had leapt to 210.

No claims were brought against accountants in either 2007 or 2008 according to law firm Reynolds Porter Chamberlain. However, last year accountants faced 13 large High Court negligence suits including claims that auditors failed to spot a fraud or negligently overvalued company assets. Deloitte Touché and PwC were among the well known accountancy firms cited for negligence in 2009.

Claims against professional advisers have now reached the highest level for 11 years and as a direct result, some professional firms are having to borrow money to pay increased professional indemnity insurance rates. PI insurance is a compulsory requirement for lawyers and accountants and it pays for the cost of defending negligence claims and for damages.

Syscap also claims that the steep increase has been triggered by lenders and investors trying to recover falling asset values by suing their advisers. They hope to win damages from the professional advisers they claim gave negligent advice regarding transactions that involved those assets.

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Image: I broke a vase by tanakawho

Professional Indemnity (PI) Insurance is a policy that will protect you from claims for damages against your company from your clients. Such claims are made for various reasons but typically are

• Damage to or loss of documents or data belonging to your client
• Negligent behaviour or breaches of a duty of care
• Losses due to theft or other fraudulent behaviour
• Infringement of copyrights, trademarks or other intellectual property rights

In any of these cases the loss suffered by the client can be significantly higher that your actual contract value, so a successful claim would wipe out any profit you made on the contract.

The policy will usually cover the costs of defending any claims made against your company and any subsequent appeals. It will also cover any resulting costs or penalties and the cost of any necessary rework, all of course dependent on the level of cover you have in place. Covering the costs of rework can be important, since it may well head off a larger claim if the original error is not corrected in a timely manner.

You should also note that many contracts include a clause requiring you to hold a certain level of PI Insurance. Given the cost of this insurance, it is a good idea to negotiate a realistic level of cover, proportionate to the work in question. Premiums will depend on various factors but the key ones are the level of risk in your line of business, your typical turnover and the amount of cover needed. Prices are extremely variable, so it pays to shop around.

Finally, it is a bit of a myth that PI claims are never made against freelancers. This is simply not true; some significant claims have been made. Even if your contract does not make it necessary to have PI cover, you should assess the risk of needing it for yourself.

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Image: gas mask fire by Matheus Sanchez