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Tax Investigation Insurance
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# 1
stulaunch
Old 23-07-2007, 2:56 PM
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Default Tax Investigation Insurance

Having recently paid 150 for a years tax investigation insurance, i just wondered if anybody knew the likelyhood of being investigated, i believe inland revenue say they choose people at random. I remember being told by accountants in the past that if the figures seem to be inline with other account for that profesion and the tax liabilty looks to be correct for your earnings then you would be highly unlikely to be investigated.
I am not a big earner, gross earnings below 30000, am i wasting my precious money on this insurance?
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# 2
Petmidget
Old 23-07-2007, 3:21 PM
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I would not say you have necessarily wasted your money but I do treat such insurances with a pinch of salt.

We do not offer this for clients though 1 or 2 have asked when joining us from previous advisors.

My personal opinion, the insurance ca be littered with get out clauses for the company, having insurance can encourage less scrupulous accountants to string out fees on investigation knowing the insurance company is picking up the tab.

Random investigations simply do not exist, this is not to be confused with random enquiries which happen often but are not covered by these insurance policies in most cases (or they are bt at much higher cost). Investigations are triggered, this can be for many reasons, some bogus some valid.

Whether you personally require insurance will depend on the likelihood of you having an investigation and the likely complexity and time to satisfy HMRC of whatever they are looking at.

As a final point, we handle roughly 400 personal tax returns per annum. We see roughly 10 - 15 enquiries per year and in 3 years have NEVER had a single investigation. Though I have 1 enquiry currently which may turn into our first and the year in question wasnt done by us.

Hope this helps

ps if you are medium to high risk then £150 will equate to maybe 2 hours of work, so could be money well spent, assuming the insurance will pay out.

Last edited by Petmidget; 23-07-2007 at 3:24 PM. Reason: addendum
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# 3
Stash
Old 24-07-2007, 10:58 AM
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Are you self-employed? or have a ltd company? if so - join the Federation of Small Businesses - and you'll get free legal help in the event of an investigation. Membership is less than 150 if I remember and theres other benefits too.
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# 4
bigdave1947
Old 07-10-2008, 1:15 PM
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Default Tax Investigation and FSB

I had to reply to the entery recommending to join Federation of Small Business to gain Tax Investigation Insurance. I was a member for 11 years so thought I was covered but when I was investigated the inland revenue dont just check your company accounts but also ALL your accounts and the FSB flatley refused to assist with the private account investigation which cost me almost 4000 in accountant fees to prove I was all above board. The FSB were very offhand with me and could not care if I was a member or not so needless to say I am nolonger.
hope this helps but its buyer beware.
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# 5
tomparker
Old 05-06-2009, 11:12 AM
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My company was investigated by HMRC. It was a random check and we were completely unprepared.

We have always used a local accountancy firm. The fees associated with the investigation were in excess of 4,800. There was nothing we could do about it. We had to pay it.

When we joined our accountants, we were offered tax investigation insurance, but we declined. In hindsight, of course we would have taken it.

We have now taken up insurance via our accountants with a company called PFP (Professional Fee Protection). The cost of their tax investigation insurance is next to nothing and would have covered the accountants fees during the investigation.

I've never been a fan of any kind of insurance, but for us it is definitely worthwhile. We are only a small business, and the cost of the tax investigation nearly put us out of business!

On the basis of my experience, I would recommend taking tax investigation insurance. It's such a small amount of money and it could save a fortune.

I hope this helps.
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# 6
Pennywise
Old 05-06-2009, 11:53 AM
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I advise our clients to join FSB to get tax investigation insurance for the business and to make sure that they have similar for personal affairs through their household insurance (usually covered within the legal expenses add-on).

We've had several clients over the years who've been investigated and whose FSB membership has covered their professional fees and in almost every case, helped prove their innocence with no extra tax due. Never had a problem with FSB at all. They use their own tax experts and all we do is hand over our files to them, they do the rest. Very simple and straightforward.

We also offer insurance directly through brokers (Qdos or Abbey Tax over the years) which costs the client around 75 per year. Although we could do the work and charge our time to Qdos/Abbey, we'd rather sit back and let the experts deal with it, so again, we just hand the files over and let them argue it out with the tax inspector.

So, we don't actually make any money from tax investigation insurance at all - we just recharge the cost to us and when the work is needed, we charge nothing as we don't do the work. We regard this as a true "value added" service to the client and advise it purely to give the client the backup they need if they're targetted by the HMRC rottweillers. For another poster to say that accountants only recommend it to make money is blatantly untrue for most reputable accountants, like ourselves!
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# 7
max11
Old 26-10-2010, 7:34 PM
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Hello there.
I ve been offered to join a tax enquiry insurance.
On the other hand, what TSB seems to offer is much more convenient:

In partnership with its service provider - Abbey Legal Protection the Legal Benefits Package is designed to provide essential business protection to members through a range of professional services.

As a right of membership, services include:

  • Access to legal advice from qualified lawyers 24/7 365 days a year.
  • Tax advice from Revenue trained specialists.
  • Information and documentation on employment law, tax and commercial law through the FSB's members-only website.
  • Insurance cover for legal and tax professional fees and statutory awards in the event of an employment dispute or full tax enquiry.

and there are also other Services and beenfits: from banking, to insurance, to medical.

I am quite tempted to join the FSB instead of an insurance.
Any direct experience with insurances or FSB?

thanks
max
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# 8
chrismac1
Old 26-10-2010, 7:57 PM
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First, I'll put up this number which the accountancy profession use as a rule of thumb and see if any of the HMRC posters want to differ:

In any given tax year, you are 3% likely to be the subject of a tax enquiry or investigation. ON AVERAGE.

There are 2 very different risks to weigh up here :

1. The risk of being investigated.
2. The risk of an expensive investigation - in either fees, time or tax bills - if you are investigated.

Some sectors are more likely to be investigated - construction, pubs & hairdressing (including minimum wage), other cash businesses. Some types of taxpayer are more likely to be investigated - for example those earning over 150k, non-doms. Common triggers for investigation are database mining (e.g sector average gross margin 60%, your gross margin 30%), acting on a tip-off, filing late returns, consistently filing returns in the last week before the deadline.

Once you get investigated, the quality of your records is the single most important feature in the length and pain of the investigation - though be warned, always let HMRC "find" something because some of them get very frustrated with perfect records and waste 000s of taxpayers' money in a desperate bid not to leave empty-handed. So all those things your accountant has maybe been nagging you about - filing all invoices & statements, keeping mileage records to back up those petrol claims, and so on - well if you've done them all consistently you'll suddenly be glad you paid attention. And if you haven't just get your cheque book out....

Insurance - can be well worth it unless you have very simple affairs. 75 to cover you for the 2k to 5k cost of an enquiry.

Insurance cover for legal and tax professional fees and statutory awards in the event of an employment dispute or full tax enquiry

This is in fact quite a narrow % of the total possible issues you may want covered. The better policies cover aspect enquiries, HMRC "visits" (often thinly disguised fishing trips designed to trap the unwary taxpayer), HMRC checks and tax disputes. It appears the FSB policy only covers full tax enquiries, which are a small subset of the full range of HMRC "battles" you may want to cover.

I assess all my clients for tax enquiry risk in the course of doing their accounts.

Those who are deemed high risk know who they are - and I more or less insist they get cover for their own peace of mind. Everyone else knows about the options but does not get a big steer from me on the subject. My perception is that those who've seen a friend go through one of these "visits" are more likley to insure than those who have not.
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# 9
chrismac1
Old 26-10-2010, 8:59 PM
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Another thing worth noting is the cost. 75 to 85 is about the standard, some can be lower - but mainly those cover all the clients in a given firm including those who are more or less zero-risk with simple tax affairs. So if you are paying 150 either you have annual sales above 1m or your accountant is raking 70 or so in on the deal.

Personally I see a big problem in re-selling any ancillary fee like this with a margin of any sort on top, especially a non-disclosed one. But not everyone sees it this way......
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# 10
chrismac1
Old 29-10-2010, 3:46 PM
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That is the point I was making. The better policies cover you for "fishing trips" which is important - in many of these HMRC staff want to meet the client face to face and trap them into unknowingly saying things which cause problems, even if these are in fact not true anyway. (Many clients understand what's on the surface of their numbers but haven't a clue about what's going on in the water.)

So in my view clients should either have a policy which covers the full range or none at all. A badly handled "fishing trip" can easily lead on to all sorts of bad things.
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# 11
max11
Old 07-11-2010, 9:38 PM
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Hi Chris, really than you for the advice. I think I will go for it.
My accountant proposed me Qdos taxwise plus that cost 175 and covers "HMRC check, enquiry, visit or dispute".
Any feedback about that insurance?
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# 12
chrismac1
Old 07-11-2010, 10:45 PM
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It's decent. Any of my clients with sales under 1m get that same insurance for 76.50 including VAT, so ask your guy to try a bit harder on price!
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# 13
morgani
Old 09-11-2010, 12:49 PM
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I would also recommend the Qdos policy. I currently offer the plus policy to my client on a client chooses basis. Prices are either 100 for Sole trader or 135 for a Ltd Co.

My plan is to make this part of my fees next year. My fees will go up by around 3 a month and everyone who I engage will be covered by the policy.

Big discounts are available from Qdos for an all client policy and I think it makes more sense for everyone to be part of it for only 3 a month.

As for whether a policy is right for you depends on how you view your risk. I'm sure you will wish you had taken it out if you get an investigation. Likewise if you take out the policy sods law will play a part and you probably won't ever be investigated.

Only you can decide really.
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# 14
max11
Old 09-11-2010, 9:25 PM
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Thanks morgani, i am going for it.
76,50 is less then half price. The prospectus that I got from my accountant offers the insurance for 175. how can I justify my request to have a lower premium?
can I tell him, another accountant offers the same insurance (taxwise plus?) at 76,50?
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# 15
chrismac1
Old 09-11-2010, 10:18 PM
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Taxwise plus fee protection service - covers "attendance at any meeting with HMRC" amongst other things. This I think is important and often excluded from policies which just cover investigations. Harmless HMRC meetings can end up being very harmful! It's also worth saying that the ICPA fee protection service (supplied by Taxwise) is even cheaper but your accountant needs to pay for this and insure every single client. For me, roughly half of my client base is BOTH at low risk of being investigated AND at low risk of a protracted and costly investigation, so I felt the route I have taken - in offering it to all clients for them to decide - was a better option. No doubt other accountants are enrolling all clients and hence getting the cost per client down.

Max11, there is nothing stopping you going direct to an insurance provider like Qdos or Taxwise plus if there is a big mark-up being whacked on by your accountant.
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# 16
max11
Old 10-11-2010, 9:04 PM
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Thank you, that makes perfect sense! i will call them tomorrow!
cheers
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# 17
davdav
Old 21-01-2011, 12:33 PM
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Default 29 for TII

You can get this insurance for much cheaper if you ask your professional indemnity insurer. mine offered me up to 25k for just 29 as an add on to my current insurance. From my research the average investigation for self employed costs 3000 and ltd company costs 5000 so this should be sufficient.
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# 18
zygurat789
Old 21-01-2011, 1:18 PM
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I read, somewhere, that this is covered by the legal expenses section of your home contents policy.
The only thing that is constant is change.
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# 19
Al Ross
Old 16-02-2011, 9:32 PM
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Direct Line Plus Home Insurance also includes tax insurance,anyone know if that would mean tax investigation insurance?
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# 20
chrismac1
Old 16-02-2011, 10:06 PM
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Great care is needed here as I have already pointed out. A tax investigation is a small subset of the possible range of interactions you can have with HMRC other than routine correspondence, so naturally very cheap insurance is possible if most of your reasons to be able to make a claim are excluded. It is not so much the cost of an investigation that is the issue, it's the amount of management time needed - time you could be getting in new business or executing business already won.

So if HMRC set up a "fishing trip meeting" and you have the costs of your accountant covered and answer the questions such that HMRC think "We're backing a loser here" there is no investigation. if you are not covered, so take a flyer and have the meeting on your own and fall into their snares, now you get the investigation.
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