The ICAEW says two years. The Limitation Act says fifteen. Plan for the second number.
When an accountancy practice closes, retires, merges or sells its book, the professional indemnity exposure does not close with it. Claims-made cover means claims notified after the policy ends are not picked up, even if the work was perfect when delivered. Run-off cover is the policy that bridges that gap — and for accountants the question is not whether to buy it, but for how long, at what limit, and at what cost trajectory. Get this wrong and a former partner becomes personally liable for a six-figure tax claim a decade after handing over the keys.
Run-off cover is simply professional indemnity insurance for a firm that has stopped trading. The work has already been done; what is being insured is the right to defend and indemnify claims that arrive after closure. Because PI is written on a claims-made basis, only the policy in force when the claim is notified responds. Once the live policy lapses, every prior year of work becomes uninsured unless run-off picks it up.
For ICAEW-regulated firms, the position is set by the ICAEW Professional Indemnity Insurance Regulations. Firms that cease to be regulated are required to maintain run-off cover for a minimum of two years from cessation, at the same minimum limit that applied during practice. ACCA-regulated firms are governed by the ACCA Global Practising Regulations, which set out an equivalent obligation — covered in more detail in our ACCA PI insurance rules guide and our ICAEW PII regulations explained guide.
Two years is the regulator-mandated floor. It is not the commercially sensible answer. Most accountants do work that is exposed to a much longer claim tail. A corporation tax computation filed in March 2024 can give rise to an HMRC discovery assessment four years later for careless behaviour, six years for negligence and twenty years for deliberate behaviour. A capital allowances claim, an R&D submission or an EIS qualifying-status opinion can sit dormant for years before HMRC tests it. By the time the client receives a closure notice, agrees the tax, pays the interest and penalties, and then turns round to sue the adviser, the original work may be five to seven years old. Two years of run-off does not get close.
The point we make to retiring partners is blunt: the regulator’s minimum protects the public for a short window. It does not protect the former principal’s personal estate. Sole practitioners and former equity partners remain personally liable for negligence claims arising from their period of practice. If the run-off has lapsed, that liability lands on personal assets.
Run-off is normally arranged as a single policy that renews annually at a reducing or flat premium, attaching to the date the firm ceased regulated activity. Cover sits on the same claims-made basis as the trading policy — a claim notified during the run-off period, arising from work done before cessation, falls in. The retroactive date should be either “inception of the original policy” or unlimited, never the run-off inception itself, which would defeat the purpose.
Limits should mirror the position the firm held while trading. ICAEW’s regulations require the run-off limit to match the minimum limit that applied at cessation — for most firms, the higher of 2.5x gross fee income or £1.5 million, subject to the regulatory cap. Many insurers will quote run-off at that floor and no higher; that is a negotiation point at the buying stage, not after.
Two practical features matter. First, run-off cover contains no obligation to notify new circumstances arising after closure in the same way a trading policy does, but it does require notification of any actual claim or written demand. Standard fair-presentation obligations under the Insurance Act 2015, section 3 still apply at each renewal. Second, the policy will normally exclude any new work, advice or activity carried on after the cessation date — if a retired partner does a single piece of paid advisory work, that work is not covered.
The Limitation Act 1980, section 14A is the section that drives the run-off length question for tax claims. It extends the time limit for latent damage in professional negligence to three years from the date the claimant had the knowledge required to bring the action, subject to the 15-year longstop in section 14B. For tax advice, the “knowledge” date is usually when HMRC issues its closure notice or assessment — which can be years after the underlying work.
A two-partner ICAEW firm in the Midlands ceases practice in 2024 on the retirement of the senior partner. Gross fee income at cessation was around £900,000. The minimum ICAEW limit applied to the trading policy was £2.25 million. The firm buys run-off cover at the same £2.25 million limit, originally intending to hold it for two years to satisfy the regulations.
In 2028, a former corporate client receives an HMRC closure notice on a 2022 R&D tax credit claim. HMRC disallows the entire £180,000 credit and assesses penalties for careless behaviour totalling around £45,000, plus interest. The client pays HMRC, then pursues the former firm for the loss, alleging negligent advice on qualifying expenditure. The claim is notified to insurers in late 2028 — four years into run-off.
Had the firm bought the regulatory minimum two years of run-off, the policy would have lapsed in 2026 and the claim would have fallen on the retired partners personally. Because they purchased a six-year run-off programme on broker advice, the policy responds. Defence costs run to around £85,000, and the claim settles at around £150,000 including the penalty element. Total cost to the insurer: roughly £235,000, all within limit.
For firms approaching cessation, run-off planning should start at the renewal twelve to eighteen months before closure, not at the closure itself. Specifically:
Apex’s view: We have seen too many retiring partners buy the two-year minimum because it is the cheapest quote on the cessation broker’s table, and then face a personal claim in year four. The ICAEW and ACCA minimums exist to protect the public during the window in which most claims surface. They are not designed to protect the former principal’s personal balance sheet against the long tail on tax work. If your practice has ever done R&D claims, SDLT planning, capital allowances opinions or EIS qualifying-status work, plan for six years of run-off as a floor and ten years for the higher-risk tax book. The premium difference, spread across the partners, is materially less than a single uninsured claim.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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