Tax Investigation Insurance?

by **opmp** on Tue Jul 21, 2009 10:23 pm

Hi there,

I have been running my own business for 7 years and have recently changed accountants. They have offered a “tax investigation insurance policy” which they say is a good way of safeguarding ourselves against tax enquiries.

This is the first time I have heard of this type of insurance. Is anyone familiar with this type of insurance?

The policy is being offered via a third party (PFP – they have a website www.pfponline.com) so it's not actually coming direct from my accountant. The website doesn't give too much detail on what the policy actually cover though.

We are a small business (our turnover is just short of £100,000), we always submit our returns on time and have never been investigated by the tax man. Is this sort of policy worthwhile? Any advice would be much appreciated.

by **opmp** on Tue Jul 21, 2009 10:28 pm

Sorry - also, does anyone know of any other companies that offer this type of policy?
I'd also be interested to know if anyone has any first hand experience of this type of policy.
Many thanks,

by **AvocadoK** on Wed Jul 22, 2009 7:25 am

Hi
It's a reasonably common type of policy. They vary, but typically they will cover the fees of dealing with a full investigation into your accounts / tax returns and often will cover fees of dealing with an enquiry dealing with just one aspect of them. There may be a policy excess, whereby you pay the first, say, £175. Policies usually cover VAT/PAYE disputes too.

Although enquiries happen to a small minority of businesses, when they do happen, the costs can be very high. HMRC do tend to get stuck into to minute detail, and even for businesses with good records, it takes time and money to conclude matters. You might liken it to fire insurance - you hope you won't need it, you know you are unlikely to need it, but there is some peace of mind having it.

I have dealt with PFP and have found them to be pretty reasonable when it comes to claims. I have also dealt with CCH (Taxsafe) who are also good.

You probably won't be able to shop around though. Few if any insurance companies would want to cover businesses that approach them for cover, for obvious reasons. They pool their risks by trying to cover a large number of clients dealt with by the same firm of accountants.

Your accountants will get a small commission from the policy - perhaps 15%, which they should tell you about. They will have admin to deal with in relation to the policy, and a 15% commission helps towards that. It's not a moneyspinner - but helps get the bills paid when an enquiry does happen.

AK

by **joannemoore** on Wed Jul 22, 2009 9:42 am

The Federation of Small Business used to promote tax investigation assistance and advice as a benefit of being a member.

by **tom 7000** on Wed Jul 22, 2009 11:53 am

You can insure anything..so it depends on your own personal view.

Whats the chance of being investigated if you have a competent accountant deal with your affairs 1/1000 me thinks or even higher......

by **Sherlock** on Wed Jul 22, 2009 1:37 pm

For a relatively small premium a business can obtain the financial security of knowing that professional fees are covered if there is any dispute with HMRC. What with random audits, any business is vulnerable to HMRC attack nowadays, as the department attempts to maximise its 'take' from the private sector. If you were investigated, even if HMRC found nothing wrong, the professional fees of a specialist adviser would be considerable (well into four figures). I consider fee insurance as an insurance against a normal business risk.

by **JHB** on Tue Jul 28, 2009 10:55 am

The insurance will only cover routine enquiries. If HMRC launch COP8 or COP9 investigations you will not be covered.

I believe Abbey also do similar investigation fee insurance

by **markiemark** on Sat Jan 01, 2011 12:29 pm

This post is looking a little long in the tooth.

Is anybody in a position to offer any updated recommendations?
It would be helpful if anyone were able to provide references to tax investigation insurance for the individual rather than for a business, or for an accountancy firm.

by **wamstax** on Fri Jan 07, 2011 7:51 pm

The short answer is that Tax Investigation Insurance is not for everyone and doesn't cover all types of enquiry. If there is a chance that you are in a "high" risk trade for investigations (see for examples - http://www.wamstaxltd.com/Tax_Hints_and_Alerts.html -) then the cost of insurance could be worthwhile as against the costs that could arise from engaging the services of a tax investigation specialist in a worthwhile enquiry.

Simple answer is to check out exactly what types of enquiry are covered (as already said in an earlier post no insurance company is likely to cover COP8 or COP9 cases which would make that type of insurance at the sort of fee you quote as very worthwhile as the fees in such cases can run to many thousands and in fact tens of thousands).

Fed of small businesses insure their members but restrict you to using their investigation officers who are or were employed by Abbey Tax. Of course they will not allow you to pick your own investigation/enquiry specialist and of course there is always in an insurance company's mind the minimising of what they are going to have to pay out. It is not the first time that I have seen cases where the tax defence agent could be robust about defending the client at the outset until it comes down to the nitty gritty and the fees start either building up or reaching the cap under the policy.

Inevitably whether you take out the insurance or not will be an individual judgement and a lot will depend on whether any enquiry could be protracted and drawn out either because the taxpayers affairs are complex or there have been occurrences that HMRC are not satisfied with. It could also be that your accountant is experienced in handling enquiries and are allowed to undertake the work themselves whereby you can be more assured of your individual interests being defended. Equally some policies allow the firm to engage outside tax enquiry specialists where these are needed and such cover would be better than a closed shop policy as you could shop around.
It is just the same considerations as if you were buying a washing machine and offered breakdown insurance - albeit the insurance company will not pay the tax interest and penalty arising from any of your wrongdoings merely the professional fees involved in dealing with the enquiry.

by **Generix** on Mon Jan 17, 2011 5:29 pm

I've purchased a bespoke type of this insurance before, but it was only so we could book some of the savings from a massive tax avoidance scheme to P/L.

We weren't insuring against professional fees etc, but the actual tax to be repaid if it was challenged and lost in the courts.

This (in my opinion) was a waste of time as I was always confident in the technical merits of the scheme. In any case, I can see how accountants fees for an investigation could mount up, so if you are a serious worrier such an fee insurance could give you peace of mind. Always check what is and isn't actually covered in these off the shelf schemes though.