Insurance against tax investigation

[HowardJB]

Hi
My accountant keeps sending me letters strongly suggesting that I join their insurance scheme which would cover me for fees etc in the event of an investigation by HMG’s tax inspectors. So far I have ignored the requests for the £240.00 (vat inclusive fee for limited companies) as I am fairly certain my business insurance covers me for most if not all of these eventualities. Can I ask other members of this forum what their thoughts are on this type of specialist cover; is it essential or is it just a nice bit of commission for the accountant?

Many thanks

Howard Bonner

[Zeno]

I offer this to my clients and stongly advise them to take it. The cost of professional fees for enquiries is usually very expensive to the point that it will only take one investigation in 10/20 years for this to pay for itself.

Some insurances do cover this to an extent, (I know FSB membership also includes this) however these come with various catches and downsides the most obvious one being you have to use their professional advisors.

Contrary to popular opinion, we do not make money selling you the insurance. We make money on being able to fight your corner to the bitter end with HMRC without worrying about the fees you are incurring.

[KidsBeeHappy]

You should have this. Even if your accounts are perfect, even if you get no tax bill or penalties, an investigation that gets this conclusion can take several months and cost thousands of pounds in fees.

[elainec100@cheapaccounting]

joining the FSB or PCG gives some cover towards such a thing.

Check and compare the policy benefits

[MyAccountantOnline]

I make clients aware of this type of insurance and give them a name of one insurance provider who offers such cover but make no money on it whatsoever. It is entirely voluntary for my clients to have this cover and they are free to choose whether to accept the (small) risk of having to pay my fees to deal with an Enquiry.

I believe most of our professional institutes advise it is at the least good practice that we make clients aware of this type of insurance.

Personally I have no wish whatsoever to sell 'insurance' to clients or to make a few pounds on it.

I actually think its a shame that some accountants have to push it so hard to cover the costs of insurance they have taken out.

It does upset many clients and I know I have gained a few new clients from accountants who have really annoyed their clients by trying to sell this type of insurance in such a hard-sell manner.

[MyAccountantOnline]

is it essential

No - but you need to be aware of the potential of paying your accountants fees to deal with any HM Revenue & Customs Enquiry. The costs of an Enquiry can be significant but the risk is in my opinion, and experience, very low. I can count on one hand the number of Enquiries I have had in the past few years as I suspect can most accountants on here.

[Zeno]

I actually think its a shame that some accountants have to push it so hard to cover the costs of insurance they have taken out.

It does upset many clients and I know I have gained a few new clients from accountants who have really annoyed their clients by trying to sell this type of insurance in such a hard-sell manner.

I must admit that the practice of making up horror stories and quoting strange statistics that I have never seen elsewhere does seem to come as standard with the literature provided by most of the companies offering this service.

[KidsBeeHappy]

The costs of an Enquiry can be significant but the risk is in my opinion, and experience, very low. I can count on one hand the number of Enquiries I have had in the past few years as I suspect can most accountants on here.

I don't really agree with this. The number of enquiries you receive as an accountant isn't really the issue. The ability of the client to pay out sometimes substantial fees, as well as perhaps outstanding tax and penalties is the issue.

The IR go through phases when the suddenly start enquiries, aspect enquiries in specific P&L sections, focusing particularly on particular industries segments (a while back it was Dentists). They rarely publish what they plan on doing for the next year, so the first you know about it is when the letter comes through to door, and by then it's too late to take out the insurance.

The chances of a bus driving through your shop window and interupting your business are a lot less than those of a tax investigation, yet you would insure yourself against business interuption.

Tax investigations can get drawn out for years, the average is around 18months for a full investigation. With one letter going to IR every 30 days and one reply back 30 days later. Put into the pot a part time inspector, the summer holidays, and the inevitable sick leave that IR staff seem to take, it's easy to see how this gets to 18 months.

I have seen the amount of stress that a tax investigation places on businesses and more important, families. Because once you're in in, belive me it is that thing that that you will be staring at the ceiling thinking about at 2am.

Taking out insurance means that you know that at least you've not got a huge fee bill coming in from your accountant, and more importantly, that you can afford to pay your accountant to argue with the revenue about the size of the bill they send you.

[MyAccountantOnline]

The number of enquiries you receive as an accountant isn't really the issue.

Of course it is - thats the point of any insurance - you assess/consider the risk and take out insurance based on this and the cost to you.

Lets be honest here, most accountants in general practice will have very few Enquiries and most of those will be sorted fairly quickly. The actual risk is very low.

In my opinion clients should -

1. Be aware of the potential for an HMRC Enquiry.

2. Understand that will insur professional fees in defending/dealing with an Enquiry.

3. Be free to choose to assess the risk and whether they wish to have insurance against it. I detest accountants becoming hard sell insurance agents.

[HowardJB]

Thank you all for your useful replies I think on balance I will take out the insurance just for peace of mind as a result of your comments.

Howard

[KidsBeeHappy]

I agree about the hard sell, no arguement there.

But clients are rarely aware of just how much can stack up in fees. When you've had clients sit across your desk in tears, because their marriage has broken up, they can't pay the tax bill that they've been sent, and you know that you're going to present them another bill for your fees..........?

Its very easy to look at this in black and white, but it is hugely stressfull and emotional, and it's people's lives. Unless a client has £10k stashed away that they don't need in order to settle a tax investigation and associated fees, then it really is something that should be considered.

Unfortunately, with sole traders, it seems that the ones that do end up with the large tax bills are the ones that don't have the money to settle it.

My true feelings are that this type of full cover should be included as standard in all business insurance policies. It is a far bigger risk to any business than burst water pipes or a break-in.

[Zeno]

Of course it is - thats the point of any insurance - you assess/consider the risk and take out insurance based on this and the cost to you.

Lets be honest here, most accountants in general practice will have very few Enquiries and most of those will be sorted fairly quickly. The actual risk is very low.

I agree that the frequency of enquiry is low however I find that even the simplest matters drag on for far longer than they should.

I do not wish to quote dodgy figures however I am sure that the average full enquiry will run to more than a couple of thousand anyway. As I said before, that is 10/20 years of paying the insurance.

I agree that the hard sell is not appropriate conduct for professional accountants and I believe that some do exploit it as a money making scheme however in my case (and the majority of others) I believe it to be a worthwhile investment.

[Philip Hoyle]

£240 seems steep for a standard small ltd co. The plan we offer costs our clients around £80 and includes the directors' personal affairs as well (for small family limited company clients), and like others, no, we don't make money out of it - in fact it costs us money to administer the plan, but it is something that the professional bodies recommend so we virtually have to offer it. I also remind clients that they may already have it, such as membership of trade/professional bodies that include it as standard with the membership fee, such as FSB, chamber of commerce, etc. I'm not interested in making money out of enquiries, in fact, I prefer to get in the specialists - simple enough for us to hand over the file and let the experts deal with the tax inspector - after all, it's their job and I think it's always better to get the experts in rather than trying to be a jack of all trades!

[accountancyextra]

We offer the insurance to all our clients, but don't make a penny on it.

I do point out to them all that this is just the same as any other insurance policy, i.e. we hope we don't have to invoke it, but it's there just in case. I also make them aware of the potential costs involved of an investigation and then leave it at that.

If clients choose not to take it, they have at least been made aware of the facts and have made an informed choice.

Personally I'm wary of the FSB policy. Whilst the cover is included, they appoint their own advisers (I believe) who won't know the client at all. Also, with the subscription model that the FSB have surely it'll be in their best interests to get an early close on any investigations, to keep costs down, rather than making sure they are fighting the corner for the client effectively.

Of course, I've never seen their policy in action, so am only speculating:p

[MyAccountantOnline]

I agree that the hard sell is not appropriate conduct for professional accountants and I believe that some do exploit it as a money making scheme

Absolutely agree.

I very firmly believe that clients should have a choice as to whether they take out insurance for this risk or indeed any other risk.

[accountancyextra]

£240 seems steep for a standard small ltd co. The plan we offer costs our clients around £80 and includes the directors' personal affairs as well (for small family limited company clients), and like others, no, we don't make money out of it - in fact it costs us money to administer the plan, but it is something that the professional bodies recommend so we virtually have to offer it. I also remind clients that they may already have it, such as membership of trade/professional bodies that include it as standard with the membership fee, such as FSB, chamber of commerce, etc. I'm not interested in making money out of enquiries, in fact, I prefer to get in the specialists - simple enough for us to hand over the file and let the experts deal with the tax inspector - after all, it's their job and I think it's always better to get the experts in rather than trying to be a jack of all trades!

Philip, where do you manage to get cover for £80, that seems really cheap?

PM the answer if you like

[apeebles]

I'm a fan of this insurance. We had a pretty innocent investigation which ended up costing a £2K in accountants fees. The only plus side is we saved a lot of tax! This is one service which I think is very necessary for a company.

Alistair

[Philip Hoyle]

Philip, where do you manage to get cover for £80, that seems really cheap?

PM the answer if you like

No need to be secretive:) - it's direct with QDOS but it is worked out on the basis of claims made (like any insurance) practice client portfolio, charge out rates, staffing etc (or they're the questions they ask before the quote!) - they do a similar deal for members of the ICPA which I understand also includes aspect enquiries which I'm currently looking into at the moment as being able to cover aspect enquiries makes a massive difference, at potentially little (if any) extra cost by going through ICPA.

[Philip Hoyle]

Personally I'm wary of the FSB policy. Whilst the cover is included, they appoint their own advisers (I believe) who won't know the client at all. Also, with the subscription model that the FSB have surely it'll be in their best interests to get an early close on any investigations, to keep costs down, rather than making sure they are fighting the corner for the client effectively.

Of course, I've never seen their policy in action, so am only speculating:p

I've experienced their policy in action and had no problems at all. They actually paid us a small fee to cover our time in providing them with our files etc., and then we heard nothing more from them. Client was happy that he ended up in the clear with no tax liabilities. The only criticism he mentioned was that they were a little slow and impersonal - but that could easily be just his perception as he was accustomed to such a brilliant service from me;)

[accountancyextra]

I've experienced their policy in action and had no problems at all. They actually paid us a small fee to cover our time in providing them with our files etc., and then we heard nothing more from them. Client was happy that he ended up in the clear with no tax liabilities. The only criticism he mentioned was that they were a little slow and impersonal - but that could easily be just his perception as he was accustomed to such a brilliant service from me;)


That's good to know as it did have me a bit worried - thanks Philip

[eddierower]

Doesn't a commercial insurance policy provide this type of cover. For example I have Legal insurance provided by DAS as part of the office insurance policy...or is a standalone policy better?

[MyAccountantOnline]

Doesn't a commercial insurance policy provide this type of cover. For example I have Legal insurance provided by DAS as part of the office insurance policy...or is a standalone policy better?

I dont think they do, you also need to be careful that policies actually allow your own accountant to handle the Enquiry.

[G.C.Whitmarsh]

Honest and objective advice, Nicola, well done !

[stphnstevey]

£25 a month, £300 year, £3000 over ten years.

One enquiry every ten years seems the estimate

If the enquiry costs £3000 or more, then worth it.

Sorry, I like to keep things simple.......like me!

[stphnstevey]

Or just save in a savings account your £25 a month. I am sure over 10yrs the interest could be very benificial!

However, don't think you could claim it as a business expense untill you actually pay out for the inspection