Tax fee protection insurance (TFPI) is an insurance policy or insured service mostly provided by your accountants to protect against the costs of dealing with HMRC enquiries. For a relatively cheap annual premium or fee, a business can get the technical and professional services of their accountant, often up to £100k of fees. The schemes often include many auxiliary services such as business legal, HR and employment law advice for the client.
If your accountant doesn’t have a TFPI scheme in place or if the scheme they offer doesn’t quite suit your business needs, then you can go to our online portal to purchase this insurance. Full details of the policy coverage are detailed within the policy documents.
Our tax enquiry insurance will cover costs incurred by your accountant defending you in the event of an enquiry into either your business or your own private tax affairs. If you want your own accountant to deal with any HMRC enquiries that is your prerogative, but if you prefer, it can be set up to cover costs incurred by the insurers own tax specialists, who have many years’ experience dealing with tax enquiries and will ensure you have the best possible defence and get the right outcome.
HMRC will write to you and/ or come and visit your business premises and ask you questions about how you have determined the amount of tax due. It is important that you have professional representation to ensure that HMRC’s questions are answered robustly and accurately. Enquiries can last for months or even years and professional fees incurred dealing with the enquiry can amount to thousands of pounds, even when no additional tax is due at the end of the enquiry.
Standard exclusions for all insurers are:
• Accounting fees for statutory work, including completing tax returns, VAT returns, compilation of accounts or reconstruction of records
• Deliberate omissions on a tax return, tax avoidance schemes, fines penalties and duties
There are some additional instances not covered by certain insurers. It is best to have an expert review the scheme/ policy for an accurate assessment of cover.
Professional fees to respond to HMRC enquiries, compliance checks and any number of specific enquiries under several HMRC notices are covered. For example, full and aspect enquiries for both corporation and income tax, intervention notices, VAT inspections and disputes, employer compliance, PAYE and NIC enquiries.
Some insurers also cover CIS, inheritance tax, stamp duty and several other specific areas, whereas some exclude these. Cover values also vary between insurers, and some have inner limits and/ or excesses applied to certain claims groups. It is always best to have a TFPI expert review the cover – the devil is in the small print.
These types of insurances normally only cover the lawyer’s costs of representing you in court, not your accountant’s costs. The aim is to stop or restrict HMRC without having to go to court. They are also often capped at lower levels outside of legal costs that will leave you with amounts due. They may also have large excesses. TFPI also allows the accountant to use extra technical resources to protect you.
More than half of HMRC’s enquiries or investigations are dropped, with very little or no tax repercussions. It is part of HMRC’s control mechanisms to ensure tax compliance.
HMRC inspectors often pursue a line of enquiry based on its understanding of a certain tax law, only for it to be proven incorrect or not applicable to that specific taxpayer. Anyone can be investigated. Remember, it’s the taxpayer who is liable for additional taxes resulting from enquiries, even if the accountant completed the tax return.
HMRC regularly reviews taxpayers, irrespective of their status. Anyone can be subjected to an enquiry. It is part of HMRC’s control mechanisms to ensure tax compliance. However, the cost of professional services by your accountant in ensuring HMRC don’t pressure the taxpayer into paying over the odds is a factor, and the accountant’s fees are still to be paid.
Sometimes, the costs of protecting your tax affairs exceeds the potential tax liability. TFPI ensures you are protected from such costs. Government grants and furlough schemes caused by Covid-19 mean HMRC is likely to be extra attentive in tax collections. Enquiries and investigations are part of the accepted compliance regime.