Tax Investigation Insurance - Is it worth it?

28 replies
Found 28th Oct 2016
Hi...
Does anyone have experience of Tax Investigation Insurance?
[AKA Fee Protection insurance I think]
My external accountant is suggesting that I get it. From what I understand, should I get a VAT inspection, the insurance will pay for my accountants time for the extra work required.

As with all insurance, I guess it's good when you need it. But I'm not sure if I need it if that makes sense.

Any thoughts would be good... seems it's a few hundred pounds to buy.
Thx in advance

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28 Comments

You need to understand the contract you have between you and your accountant. What would happen if he were to do things wrong with your accounts? Whereas the responsibility for paying your taxes lies with you, if you employ an accountant and they get things wrong you still end up paying. But what could you do regarding your contract with your accountant? What redress would you have?
Thats a long way to say that if your accountant does not feel comfortable about doing their job correctly, perhaps it is them to consider being insured. It may also spark you to think whether you have the right accountant.

Original Poster

Thanks TT for the prompt reply.

Pretty sure there's a standard clause that says they are not liable in the event of a mistake, but I've known this person for a long time and if it was a genuine error then I'd know it would be sorted.

Moreover, I think it's the scenario where HMRC want to do an investigatation and I need to pay for her time in prep and request for information. I think that's outside of normal hours and would be billable.

Has anyone actually had an audit where this insurance "came in handy"?

Thx

Hi
I have purchased this insurance through my accountant for the last two years and even though I haven't had any investigation either VAT or Income Tax/NI/Corporation tax I still think it is good value for money,
As HMRC have been tasked with cutting down on Tax Evasion/Avoidance because the government is trying to save money, there is always the possibility of an Inspection by HMRC.
If you think that a weeks work by an accountant could easily be charged at over £500 and obviously would be more if an inspection dragged on - it isn't to cover mistakes by an accountant as they are only submitting the accounts from data that you provide to them.
It all depends on your outlook on these things but I think it is well worth it. I do pay less than what you have quoted though. I assume that it is dependant on size of business/turnover maybe.
Rich

Original Poster

Hi Rich
Thanks for taking the time.
Yeah I see the sense in what you say. There is no doubt that years go by and algorithms are increasingly used, I can see the likelihood of a HMRC letter increasing year on year.

I can buy it through her which I think has a bit of a mark up (don't blame her... it's what I do too). Does make me wonder if it's a product mainly to benefit the accountant. Makes sure they get paid - LOL

A bit of Googling I can see (based on my company size)
Solar Insurance over for over £185 (without filling in a detailed form)
FeeProtect.com which is £160 ish

Think my accountant might be on a hefty markup here! :-)

Any thoughts kind people? :-)
Thx

Edited by: "top_pull" 28th Oct 2016

richhol10

HiI have purchased this insurance through my accountant for the last two … HiI have purchased this insurance through my accountant for the last two years and even though I haven't had any investigation either VAT or Income Tax/NI/Corporation tax I still think it is good value for money,As HMRC have been tasked with cutting down on Tax Evasion/Avoidance because the government is trying to save money, there is always the possibility of an Inspection by HMRC.If you think that a weeks work by an accountant could easily be charged at over £500 and obviously would be more if an inspection dragged on - it isn't to cover mistakes by an accountant as they are only submitting the accounts from data that you provide to them.It all depends on your outlook on these things but I think it is well worth it. I do pay less than what you have quoted though. I assume that it is dependant on size of business/turnover maybe.Rich



2 things come to mind: -
1. If you don't give HMRC a reason to investigate you, the risk of them doing so is low. So make sure you toe the line
2. You are correct to say that tax avoidance is big on HMRC's agenda, mainly due to the media coverage of large corporations. However, HMRC have also cut the number of investigative staff, so the chances of getting investigated are lower than ever.

There are 2 groups of people that are likely to purchase this insurance;
* those who have creative accounting and run a high risk
* those who are risk averse

If you're in the first group buy it.
If you're in the second group you probably don't need to buy it because being risk averse means that you will be running your accounts cleanly. However, because you're risk averse you'll want to cover yourself against the likelihood so you'll probably buy it anyway

Original Poster

Hi SL
Yeah.. I'm probably in the latter to be honest. Risk adverse.
My dealings are pretty straight forward, and would *hope* that my ship is in order.

I seem to have gone several years without needing this insurance and now it's been suggested to me. Part of me wonders whether I buy it jsut to keep in my accountants good books :-)

Yes - I have heard the number of VAT inspector boots on the ground are fewer, but they are tasked with individual targets of extra collection. Would be just my luck.... :-)

Has anyone been inspected ... insurance or not?

Thanks

Original Poster

Rich, out of interest was it your accountant that suggested you buy it?

richhol10

I have purchased this insurance through my accountant for the last two … I have purchased this insurance through my accountant for the last two years and even though I


Yes it was but I had been looking at it previously. I am not really in either of the groups I just thought it made financial sense in the event.
It isn't just VAT inspections it is all types of tax from employment and business profits that are all covered by HMRC

Original Poster

OK Cool... I'm leaning towards looking around and doing it direct with someone. Cheapest I can find is FeeProtect.com £150 all in won't break the bank.

It says I can still use my accountant in the event anyway.

Wouldn't mind hearing from anyone who has claimed on this type of insurance and their experience?

Edited by: "top_pull" 28th Oct 2016

Personally, no, I don't think it's worth it. You pay your accountant to prepare your accounts. This is what HMRC want to see. That's all you need to do.
Personally, I've always found the VAT / Tax inspectors to be reasonable (aside from one with an issue over tea purchases....).
If you're saying that the insurance covers the extra work needed by your accountants to do additional work on your accounts, I'd suggest they arnt doing what your paying then to do in the first place......!!!
Just think of all these 'insurance policies' being peddled now, look at your direct debits.... you can insure anything nowadays and I think a lot of it is just down to scaremongering

Original Poster

Hi KTM

Yeah spot on with my initial reaction!
I probably would never need this! My activities are pretty straight forward and I can't think of any interpretation that is a grey area between tax man and accountant.

The one thing that has been on my mind this afternoon and led me to ask the question on here was a mate in his retail business.

He gifted a lot of prior season stock to a cancer charity which his accountant took as a tax deduction. When the VAT Inspector looked at it, they initially said that it didnt qualify and that he owed several thousand pounds of VAT. His accountant challenged this and after a few weeks of wrangling to HMRC they agreed. After all it was argued he could have burnt it instead of letting a charity have the benefit. He still had to pay his accountant time for this 'interpretation'.

But I suppose the answer lies in how complex a business is or isn't !
Edited by: "top_pull" 28th Oct 2016

If you employ an accountant then it may be worth paying for as any HMRC investigation will mean lots of time spent by your accountant dealing with the investigation, which will be expensive. If you do the accounts yourself then it won't matter if you have to spend your own time answering enquiries from HMRC.

I recollect from somewhere, but can't remember the source, that all new businesses should expect enquiries from the tax man in the first 3 years of operating. Not sure if that is true.

Considered being member of the FSB?

fsb.org.uk/ben…ion amongst other benefits.

Original Poster

Hi Mutley,
Yeah it's the unknown cost aspect that really makes me think this might worth a punt. Never had a inspection so it makes me think one will come eventually.

Would really be good to hear from someone who's benefitted (or not) from a claim.

Thx

Original Poster

Hi Kiish

That's a really smart thought! Have it bundled in with other services. Will check it out further. Not sure how much it would cost as I think I'm slightly bigger in staff terms than they show as their base price of membership

Thx
Edited by: "top_pull" 28th Oct 2016

top_pull

Hi KTMYeah spot on with my initial reaction! I probably would never need … Hi KTMYeah spot on with my initial reaction! I probably would never need this! My activities are pretty straight forward and I can't think of any interpretation that is a grey area between tax man and accountant.The one thing that has been on my mind this afternoon and led me to ask the question on here was a mate in his retail business. He gifted a lot of prior season stock to a cancer charity which his accountant took as a tax deduction. When the VAT Inspector looked at it, they initially said that it didnt qualify and that he owed several thousand pounds of VAT. His accountant challenged this and after a few weeks of wrangling to HMRC they agreed. After all it was argued he could have burnt it instead of letting a charity have the benefit. He still had to pay his accountant time for this 'interpretation'. But I suppose the answer lies in how complex a business is or isn't !



To be fair, about your mate and his charity donation, he could have argued that himself with HMRC, it wouldn't need hours of research.
Personally, I wouldn't bother with the insurance, if you know your business inside out, your accountant does what they are getting paid to do and you have nothing to hide, you'll be fine.

ok look at it another way how much do u think your account would charge to do this extra work If this were to happen and if it did how many times is it likely to happen say in next 10 years I would hazard a guest maximum of twice. so if u pay 200 for next ten years that's 2000 pounds I would assume that would cover the accountants fees to do these reports 2 times and u would have some spare cash at the end or they may never ask u so I think the insurance in the long run isn't worth it. personally I would ask some other accountants in the area what there fees are for the work that your accountant charges you presently I hazard a guess u will find a cheaper accountant.You seem like a old customer and the accountant maybe over charging you.

Original Poster

Thanks Mudd...
All valid points. I would say that a good accountant should pay for themselves and I wouldn't ever look to scrimp on that.

Chatting to others who have had an VAT inspection, it seems that the complexity is unknown and so is therefore cost.

I think I see it this way...
Let's say VAT inspection finds a £10k difference in opinion. Let's presume it's complex and covers many transactions. The accountant works for a 3 week period and manages to get that down to £5k which the HMRC accept. At this point, I can't decide whether I'm happy or not. But I've had to pay £1800 in accounting fees.

So best case is with insurance is that it costs me £5k.
Without insurance it costs me £6.8k.

Worst case is HMRC don't accept the accountants workings and I end up paying £11.8k

All theoretical. I know.

One argument I have heard is that as your accountant will get paid anyway, so they are more likely to work long (maybe hard) as the insurance will pay them!

Does seem like it's a product where the main winner is that accountant every time! :-)

I normally don't think twice about £150 business expense.

Just managed to spend that on a bloomin' Lego present for one of the kids!

Cheers

Don't forget you can claim that insurance cost as an expensive so you don't really pay £150. If you can cover the worse scenario cost and think the chance of investigation small, then leave it out.

mutley1

Don't forget you can claim that insurance cost as an expensive so you … Don't forget you can claim that insurance cost as an expensive so you don't really pay £150. If you can cover the worse scenario cost and think the chance of investigation small, then leave it out.



I don't get this a lot of people use this when they pay for things but I assume he still would be 120 pounds worse off as 20 percent can be deducted for tax or is it something differnet that this.

Original Poster

At its most basic....
If you expense something, it reduces your profit. Profit is taxed. So by making less profit, you pay less tax.

I'm sure there is a better explanation.
But it's a good point made by mutley

We took out an insurance with our accountants for this type of thing and yes, it was expensive, as most insurance is if you don't need to use it. We had a tax investigation which would have cost us in excess of £8k to settle ( 15 years ago). We were very happy that we had done it! Our books were in order as we knew they would be, but would still insure again if we were in business

Original Poster

Hi Wanda.
£8k. Blimey!

How much time did your accountant need to spend on this enquiry? (If you recall of course).

Thx

Edited by: "top_pull" 30th Oct 2016

top_pull

Hi Wanda. £8k. Blimey!How much time did your accountant need to spend on … Hi Wanda. £8k. Blimey!How much time did your accountant need to spend on this enquiry? (If you recall of course). Thx



​15 years ago seems like u must have had a very large or complex business for it to cost that much to investigate it

Original Poster

Hello

Thanks everyone for their input. Who knew insurance could be so exciting! ;-)
A well balanced discussion with some good points made from both sides.

In a nutshell I've decided to take a punt and get some cover.
I've gone for the cheapest I can find online which seems to be
FeeProtect.com
For my company size It was only £157 which saves me £100 compared to buying through my accountant. (Cheapest is £56 for a private individual). Hardly any form filling beyond company address which was nice. :-)

Will wait and see how all it pans out. I'm a fair believer in irony... If I'd decided not to bother you just know I'd get a letter from HMRC. :-)

Thanks again!
Edited by: "top_pull" 30th Oct 2016

I'm with Suffolklad and ktm666 on this.
Insurance premiums are good for high risk, but if your company's books are well run and not too much 'grey' accounting and you do not have wild swings in revenue,vat,profit, tax year to year then it's unlikely you will get a vat tax inspector ..

Job cuts and voluntary redundancy have gone against the governments rhetoric to clamp down on tax avoidance etc. Is an accountant fees worthy of handing some paperwork over to hmrc and then answering a few queries for a basic business model with transparent books.. I'd say not

Original Poster

Hi Whatya
My business partner would completely agree with you!

You've touched on something that I think has been in the back of my mind. The currency volatility over the last few months will certainly affect my profitability and of course costs. We source a fair few things from the Eurozone. We're all going to feel inflationary pressures for the foreseeable.

I do anticipation a reduction this year in turnover, profit, and tax contributions. All things that may (or may not) put us higher on the inspection list.

If anyone has a crystal ball I could borrow... that would be awesome.

Cheers
Edited by: "top_pull" 31st Oct 2016

Original Poster

This made me chuckle ... For anyone interested. :-)

After saving £100 on what my accountant offered, I thought this was a good deal... so I submitted it to the main HUKD deals site.

Maybe someone out there may benefit...

Anyhow, it got moderated out as the website was a bit unknown and didn't have much of a social presence.

"Fair enough" was my first thought... then immediately afterwards,
"Who on earth would follow an obscure insurance product on social media!?"



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