Tax investigation insurance / Professional Fee Protection

tightfrog

Hi,

I'm looking for some advice here. I am the Director of a small company (just me and my husband) turnover approx £30 000 and I would like to purchase tax investigation insurance or professional fee protection insurance so we are covered in the event of an investigation by HMRC.

So far I have been quite surprised by the prices quoted. We do want basic tax investigation insurance for full and aspect enquiries plus directors personal tax affairs insurance and preferably cover for IR35 investigations. We are with CheapAccounting and my accountant has so far been great but their insurance was hugely expensive (£300+), FSB was £150 (membership) plus £200+ for the additional insurance. PFP have so far been the best with £225 for everything. Having spoken to our household insurers however their underwriters say I could be insured for personal tax investigations under their legal cover for £20 per year which would obviously bring down the other quotes.

With such extreme examples and quotes much higher than our PI, PL and EL insurance I am feeling a bit bamboozled. I have searched in the forum for other threads which seem to suggest I should be paying around £100.

Any advice on whether I am being paranoid / too mean / what other experience is would be really gratefully received.

Cheers

greyteam1959

Before you buy this Tax Protection Insurance double check your existing shop / business / personal insurance policies.
You may find that you already have this cover !!!!
HTH

tightfrog

Thanks Mervyn11,

I have checked and unfortunately we do not already have this cover under our existing business insurance policies. Our household insurers have told us that in theory we could be protected against an investigation into our personal tax affairs by adding the family legal cover (only £20 per year) but I didn't like the "in theory" part of their statement! I will look into this more if need be.

Cheers

chrismac1

Your quotes seem way off the mark to me. I'm an accountant, clients who want the insurance - which is through Taxwise and very comprehensive - pay £90. In your case, this would cover your company and both directors for practically any sort of HMRC interaction providing the return concerned was filed on time. IR35 is also covered.

Mind you I have only claimed on it 3 times in 4 years across 120 or so clients, and the maximum claim was £300. So this is reflected in a low premium charge to my practice and hence a low premium charge to my clients.

I'm surprised Cheapaccounting is so high as I have a lot of time for Elaine Clark and the whole ethos behind the business. Maybe if you rang them and explained your feelings in this post they'd move to £150 which - given the overall package they are offering you - would probably be a good deal for both sides.

I think it is better to be insured via your accountant if possible as you should be guaranteed a quick, professional response. I have replied to every HMRC enquiry within 5 days and they have all been fully closed out by HMRC within 31 days.

If you have another party between the accountant and HMRC then everything will take longer if there is an enquiry.

tightfrog

Hi Chrismac, thanks for your advice.

The insurance offered by CheapAccounting is through Qdos and when I contacted them they pointed me in the direction of the cheaper freelancer policy for £117 which covered Ltd companies too. It doesn't cover IR35 investigations though so I am still better off with PFP except their premium cover at £125 covers IR35 investigations but not investigations into Directors tax affairs (that is £225) It is all so complicated!

The main reason for the expensive IR35 policy from Qdos though was that as well as covering you for fees incurred it covered you for any liabilities found. I found this slightly bizarre - doesn't that mean it would be worth a company risking breaking IR35 rules because even if they were caught Qdos would pay up? Or would the policy just not pay out? I hadn't ever imagined getting cover for liabilities as I plan not to actually break the rules, I just wanted cover against investigations.

Everyone I have spoken too from the various companies has been knowledgable (except at FSB, I had to explain IR35 to their insurers!) and helpful but I can't help being somewhat cynical about the industry that has been created to harvest money from the threat of IR35.

I am still at a bit of a loss as to who to go with. Just trying to balance up all the risks and work out what we can afford and what we can't afford to not cover ourselves for, if you see what I mean.

Thanks again.

tightfrog

Quick update for anyone interested in this thread.

Having looked in more detail at the Qdos policies the Freelancer policy does cover you for IR35 investigations (just not liabilities) so ticks all the boxes for me. Ok so it is slightly more expensive than the prices quoted by Chrismac but I suspect you get a good deal as you say because you have a large client base and very few claims.

I'd still be interested in anyone else's thoughts on this but thanks to Mervyn11 and Chrismac for letting me bounce my ideas around!

Cheers

chrismac1

IR35 industry - in fact I am pretty supportive. Let's take a recent VAT enquiry into an "IR35 at risk" client of mine. He'd bought a van, and we claimed the VAT. He was on the flat rate VAT where input tax is normally zero.

So I simply posted off the workings, plus two invoices. Twenty days later = end of enquiry.

The problem is that IR35 has been drafted in a very woolly fashion. Then you get the HMRC attitude to people in business which in general is utterly clueless - let's face it the average HMRC punter is a bum on a seat who gets paid regardless of how slowly and poorly the job gets done. Commercial nouse = zero is a safe assumption.

So IR35 enquiries are of the "how long is a piece of string?" variety. Similar to "husband and wife" cases. The one case I have figures on is Arctic Systems, a.k.a. the Jones case.

Maximum tax take for the United Kingdom if HMRC had won = £60k

Fees HMRC spent just on lawyers - excluding internal time = £1.5m!!!!

Not even the stupidest employer I have had in the private sector would have behaved like this. In fact anyone who'd signed it off would have been reading his or her P45 pronto!

That's why I insist on the insurance for all IR35 and / or "husband and wife" clients.

tightfrog

Fair enough, You are probably right in that these companies are providing a good service to people who might otherwise be rather steam-rollered by HMRC, I can imagine a lot of small businesses are at risk of going under if they don't have insurance and get investigated. think I'm just finding it all a bit of a steep learning curve!

Your example makes me question whether £50k of cover is enough though, crikey!

Thanks for the words of wisdom. I'm new to all of this and grateful for all the advice!

Pennywise

Similar to Chris, our practice would charge £80 for tax enquiry insurance and that would include full cover for aspect enquiries, business record checks and IR35.

You have to be wary of the cheaper accountants who seem to offer good value, but as in this case, they're probably making more profit on insurance commission than on the accounting work itself, i.e. a loss leader.

In our case, and I'm sure for Chris also, we recharge the tax enquiry insurance at cost price so we don't make a profit.

One other point, though, is that if you use a different insurance provider, they usually won't pay for any time spent by your own usual accountant. There'll nearly always be some time spent, in discussing the case and passing information etc between your accountant and the insurance company appointed accountant, which you have to pay for. We've seen this a number of times with the tax enquiry insurance provided by FSB - they insist on their own tax specialists. With our policy, we stay in control, do all the work, and the insurance company pay us for all our time - if we need more specialist support/advice, the insurance company provide a consultant for us to refer to - in our opinion, this system works far better.

Re the IR35 policies that cover the tax in addition to professional fees, I think you'll find that they won't offer cover if they don't think you're caught by IR35 and there'll be a policy wording caveat saying that they won't pay out if you don't tell them all material circumstances. So, it's a win-win to them really isn't it - they'll never have to pay out as they won't take you on in the first place if you tell the truth and your contract is caught or border line.