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Where Taxpayers and Advisers Meet

Acountant advises insurance for tax investigation

Peterad
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby Peterad » Mon May 02, 2005 1:11 am

I've been with my accountant an number of years and he serves me well. I am in partnership, self-employed. He is advising me to get insurance to reimburse costs for any revenue investigation. My business is clean and simple and I keep my nose clean. Do I need to pay £150 a year for insurance. Is this normal?
Thanks,
Peter

Instinctive
Posts: 1797
Joined: Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Mon May 02, 2005 3:39 am

No, you don't have to be insured for this if you don't want to.

Tax investgations (they like to call it enquiries) can be for specific queries, or targeted or simply at random. If your accountant handles any replies and attends any meetings with you, you will still be responsible for his charges. In some cases, it is difficult to prove your innocence, eg cash trades, gross profit margins, accumulated savings, very nominal spending habits etc. You could still be drawn into a lengthy investigation and the costs can easily run into thousands.

This is like whether to take out an appliances insurance. You never know if and when it will go wrong. It could break down in 3 years or last you 20 years.

If you think you can handle the tax inspector by yourself, you could take a risk.

Ramnik

Peterad
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby Peterad » Mon May 02, 2005 5:03 am

Thanks,
I'm a bit pressured to get it and he acts as an agent for the insurance. I pay hefty accounting fees and don't want to buy cover. However if my number comes up he could say "I warned you".
As for handling a tax inspector myself. I guess I will just have to try.

Cheers,

Peter

Sherlock
Posts: 79
Joined: Wed Aug 06, 2008 3:21 pm

Postby Sherlock » Tue May 03, 2005 3:21 am

The suggested premium may seem an unnecessary expense, but you need to bear in mind that H M Revenue & Customs can undertake a 'random audit', not depending on whether or not the partnership's books and accounts are in good order.

I am a qualified accountant and tax consultant, and my books are meticulously kept, but I have professional fee protection cover myself.

Also, successive governments are unwilling to raise basic rates of tax and have to find other ways of increasing the 'tax take'. Compliance and enquiries are an obvious way to do this, particularly with small businesses, which are seen as a 'soft target'. I would think carefully about this offer before dismissing the idea.

John S
Posts: 27
Joined: Wed Aug 06, 2008 3:13 pm

Postby John S » Tue May 03, 2005 12:30 pm

Peter
It's a decision that only you can make. About 85% of clients of a well respected small/medium accountancy practice that I know have the cover. But, it's your decision. If you could comfortably settle an additional accountants bill of say £750 - £1500 for an Revenue investigation then tell your accountant that you don't want it.

Peterad
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby Peterad » Tue May 03, 2005 2:06 pm

But don't you think that £150 a year to cover £750 - £1500 is a bit steep?

Question: Would the insurance or the fee for additional accountants bill be allowable against tax?

kirstie.williamson@a
Posts: 328
Joined: Wed Aug 06, 2008 3:14 pm

Postby kirstie.williamson@a » Wed May 04, 2005 2:43 am

True, but you also have to consider the expertise and experience of the accountant in negotiating a settlement. If you are picked for a random enquiry then the fees may be as suggested above but if the case is drawn out you may feel that you have to settle at an earlier stage of the enquiry than you would like because you cannot afford more protracted negotiations.

In a recent case that I have come across the Revenue were asking for £178k in unpaid tax, interest and penalties. The accountant concerned finally agreed a settlement of £41k. The fees were £4.5k. The fees may be steep but could you have managed to negotiate a settlement figure of less than 25% of the original ? I think in these particular circumstances the client ( who was not insured) would have been only too happy to pay £150.

KW

Instinctive
Posts: 1797
Joined: Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Wed May 04, 2005 4:53 am

Have you spoken to your business insurers or local trade associations of which you may be a member? They may cover you for a lot less and still give you peace of mind. After all, that is what the insurances are for.

if you claim the premium as an expense, you may need to bring in the claim value as addition to profits. Accountants fees may be allowable only if no material additions to your profits were discovered.

Ramnik

Peterad
Posts: 4
Joined: Wed Aug 06, 2008 3:24 pm

Postby Peterad » Wed May 04, 2005 9:28 am

Thanks for all the advice. To put my case in perspective yearly business earnings are never more than £150k. But can drop a lot lower.
Peter

John S
Posts: 27
Joined: Wed Aug 06, 2008 3:13 pm

Postby John S » Wed May 04, 2005 11:54 am

Peter
Most clients that I know pay about £235 as a tax investigation insurance premium.


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