Tax Investigation Insurance

sunshinetours

metso wrote: »

is it at all possible to take out insurance once an investigation has initiated?

In other words once HMRC have started to ask questions.

Thank you.

No in simple terms. Any sort of insurance will generally exclude pre existing events

Dillon143

My mother aged 83 is recently widowed and in helping her with her paperwork I find that her accountants who for many years have prepared tax returns for her and my father (who died aged 90 this year) offered her this tax investigation service. The letter "advertising" this insurance to them is, I think, a rather frightening letter and of course they have paid this insurance.

I think that this is morally wrong (and I am not sure that they need to have been completing tax returns anyway as although my mother's tax affairs are not totally straightforward, my father's were). I just cannot see HMRC going after pensioners with income way below the higher tax bracket.

Any thoughts? Is there anyone I can complain to?

chrismac1

I have had an interesting thread on the AccountingWeb site. A post started up on the merits of tax insurance and before long about 3 accountants had said how wonderful it was, a chance to add 5% on to your fee base for doing nowt. I then said this sort of scalping of clients was what got us a bad name, and got jumped on to some extent. In the first instance you should try writing to the accountants. After that it's a case of complaining to their Institute, beyond that you're looking at some kind of mis-selling claim potentially to the Financial Ombudsman I guess. This will hinge on whether the costs and benefits were properly explained - if the cost was the £80 I charge for comprehensive cover against all sorts of enquiries you'll be struggling. But if the accountant was one of the scalpers selling less comprehensive cover at £200 or more you may be in with a shout.

You are right to say that a non-business client with a pretty simple tax return does not really need the cover and I specifically advise those clients it is not worth it other than for peace of mind. The "average" client is running a small business, probably VAT registered and possibly doing PAYE and / or corporation tax and so on, hence can fall prey to a wide-ranging and therefore costly investigation.

UtherPendragron

It is not so much is am I wasting the money paying for this insurance but can I afford not to. I have known people go through investigations for 7 years and at the end of it not owe a single penny in extra tax and the difference - they had insurance and qualified advisors behind them. Last time I saw figures - which was a few years ago now - most of those investigated (well over 90%) prevailed. Look up Jones v Garnett again a couple faced with a £40K+ tax bill - but they had insurance - and eventually owed nothing. You would have to pay insurance for over two centuries to cover that saving :eek: - it is even more stark when you consider what the defence would cost. :eek:

Tolley's tax code is over 10,000 pages - that means to have any understanding of the rules you need to know last years rules, this years and to plan - what are next years - a staggering 30,000 pages of rules. Proper advice when facing the taxman is therefore a necessity.

Another important consideration is what does the insurance pay for. For example if you have a PSC (Personal Service Company) then it might be important for you to have Employment Status advice - that means insurance which pays for your accountant - who may not have this knowledge - is worse than useless.

It all depends on your situation if Tax investigation insurance is a good idea and what it pays for.

(Usual caveats apply - I am not an accountant or tax specialist just using experience as a freelancer for 15 years )

UtherPendragron

When I was a freelancer I had this insurance via my membership of the Professional Contractors Group - that paid out once an investigation started - but with higher membership you could have insurance that paid out as soon as the Brown envelope hit the mat.

I never needed it but having seen a number of people benefit - I would still pay for it, even if I was never investigated.

UtherPendragron

metso wrote: »

is it at all possible to take out insurance once an investigation has initiated?

In other words once HMRC have started to ask questions.

Thank you.

No - I have never seen any tax investigation insurance that pays once an investigation starts. I have seen people who wished they had it when an investigation starts.

UtherPendragron

Dillon143 wrote: »

My mother aged 83 is recently widowed and in helping her with her paperwork I find that her accountants who for many years have prepared tax returns for her and my father (who died aged 90 this year) offered her this tax investigation service. The letter "advertising" this insurance to them is, I think, a rather frightening letter and of course they have paid this insurance.

I think that this is morally wrong (and I am not sure that they need to have been completing tax returns anyway as although my mother's tax affairs are not totally straightforward, my father's were). I just cannot see HMRC going after pensioners with income way below the higher tax bracket.

Any thoughts? Is there anyone I can complain to?

I once had a reason to call the FSA about this - they were due to take on the job of regulating insurance the next year. A lot of people were being sold this by their accountants - when all it did was pay for the accountant's fees! Bit of a win win for the accountant - you buy the insurance and the accountant gets a referral fee if you don't claim and the money if you do!

That is why it is vitally important to know what the insurance pays for.

chrismac1

My own approach to this is that I have blanket cover via Taxwise for my whole client base. Every set of accounts I state my view of client risk and whether I consider the £90 per year to be good value. For example, for anyone at risk of IR35 or income shifting it is a no brainer to pay but for a small business keeping excellent records it probably isn't.

Around 35% of clients are advised to pay and around 35% take it up. Not the same 35%, but that's another story...

johnnie7

hi

been reading this tread and enjoying it very much

my account has sent me a similar letter offering the insurance but for £180 p/a

is there a web site link anyone can point me to get a similar insurance for a little less

many thanks in advance
john

rsclark

I am aware that some organisations offer this as part of membership, but quite often they insist that they appoint the advisor, which probably wont be your own accountant. I think it is important that you have someone representing you that knows you, your business history, and is acting in your interests rather than trying to maximise a business transaction. As with many insurance policies the cover varies massively, and you only realise how bad they are when you make a claim. Cost shouldnt be the main issue. You should also be considering the risk of your type of business, what types of enquiry are covered, any excess, the cover limit, how reputable HMRC consider your accountant to be, and how confident you are in the quality of your record keeping. Given that accountants can claim £100-£200 per hour from the insurance providers, it doesnt take too long to rack up £1k of costs, which may be the limit of cover on compliance enquries. Some people may prefer to bank £200 per year to set up their own fighting fund to pay thier accountant , and at least the money isnt wasted if there is no enquiry. I know people who have been in business 30 years and never had an enquiry. Personally, I believe that HMRC do not have the resources for random enquiries, and if you are picked there is a good reason behind it, although they do have taskforces targetting certain types of business in certain areas of the country.