Anyone who submits an annual tax return can be picked at random for a compliance check by HMRC tax inspectors to see whether the right amount of tax and national insurance contributions are being paid based on the income.
HMRC has in recent months adopted a more focused and directed approach to tax compliance and are carrying out more investigations to ensure that tax revenue that is owed is collected.
How can I protect myself and my business
By taking out annual tax investigation insurance, you can help to cover the potential cost of being investigated by HMRC which can be both time-consuming and expensive. This type of insurance policy also gives you the peace of mind that you will be covered should you be selected for tax investigation.
What are the chances of being investigated?
If you think that only large companies or wealthy individuals are likely to be subject to a tax investigation by HMRC, unfortunately it’s time to think again. The investigations have been on the increase in recent months and cover all types of businesses.
It’s important to note that tax investigations can be triggered at any time for any reason not only by suspect accounting, missing records or late submissions. It can be and often is just pure random choice.
In other words, you don’t have to have done anything wrong to be the subject of a tax investigation and tax inspectors have extensive powers, including the right to see financial records going back as far as six years.
Why do I need tax investigation insurance?
As a sole-trader or limited company who keeps accurate and up-to-date records, completes their tax return every year and pays any taxes due on time, you may well see tax investigation insurance as an additional expense you can do without.
But as we’re already highlighted, you can be selected for tax investigation at any time and while you may have nothing to fear in terms of fines for underpayment or false declarations about your taxes, the investigation itself can be a lengthy and stressful business and, if selected, you have no choice but to comply.
Estimates of the cost vary and much will depend on the nature of your business, the number of transactions you carry out and other factors, but this type of investigation isn’t just a financial headache.
According to the Federation of Small Businesses the average tax investigation can take up to 16 months and likely costs incurred around £5,000 in accountancy fees for work carried out to respond to any queries from HMRC. For those who have tax investigation insurance these costs are covered by the annual premium.
Trying to run your business while at the same time complying with HMRC demands for financial records and additional information about your taxes, can be a real strain and seriously affect your ability to operate efficiently. That’s where knowing you are covered by tax investigation insurance can help.
What does tax investigation insurance cover?
As with other types of insurance, tax investigation cover can be tailored to suit individual needs.
With tax investigation insurance in place, you can get on with business without worrying about an unwelcome call from the tax office. We have received professional guidance that this insurance should be a part of all our clients accounting costs.
Our insurance policy states:
SCOPE OF COVERS
1) A Full Enquiry – This is an extensive examination which considers all aspects of the self assessment tax return. It will involve a comprehensive review by HMRC of all books and records underlying the entries made on the return. It will also feature the issue of a notice under S9A/S12AC TMA 1970 or paragraph 24(1) Schedule 18 FA 1998.
2) An Aspect Enquiry – This is where HMRC enquires into one or more aspects of the self assessment tax return which may involve clarification of particular entries, to detailed consideration of whether those entries have been treated correctly for tax purposes. It may involve a check on the records upon which the particular entries were based. It will also feature the issue of a notice under S9A/S12AC TMA 1970 or paragraph 24(1) Schedule 18 FA 1998.
3) A Business Inspection Notice – This is where HMRC exercise their power to request entry to a person’s business premises and inspect the business premises, assets, goods and documents. It will feature the approval of an “Authorised Officer” of Revenue & Customs and the issue of an Inspection Notice for a short notice or unannounced visit or where the proposed inspection has been approved by the First-tier Tribunal. The notice will be issued under Schedule 36 paragraph 12(2) FA 2008.
4) VAT/PAYE/CIS/NMW Compliance Visit Cover – An indemnity limit of £2,000 – This is where HMRC wish to carry out a routine PAYE/VAT/CIS Compliance Visit where it is considered that professional representation is necessary and the matter cannot be dealt with by the client alone.
5) National Minimum Wage Compliance Visit Cover – This is where HMRC wish to carry out a routine National Minimum Wage Compliance Visit where it is considered that professional representation is necessary, and the matter cannot be dealt with by the client alone.
6) VAT Disputes – This is a challenge by HMRC to the accuracy or completeness of returns submitted. It will feature a disagreement over both the way in which VAT has been operated and over the amount of VAT due.
7) PAYE/NIC/CIS Disputes – This is a challenge by HMRC to the accuracy or completeness of returns submitted in accordance with Pay As You Earn/CIS Regulations. It will feature a disagreement over both the way in which PAYE/CIS has been operated and over the amount of PAYE/NIC due.
8) Employment Status Dispute – Where HMRC state that an individual previously classed as self-employed should have been subject to PAYE.
9) IHT Cover – An indemnity limit of £5,000 – This is where your involvement is considered necessary following the submission of an IHT return which has been wholly prepared by you.
10) Gift Aid Inspections – An indemnity limit of £2,000 – Where the client is a registered charity operating a Gift Aid Scheme with HMRC which is being reviewed by HMRC.
11) Partners/Directors Cover – Where a partnership or limited company join your Tax Investigation Service you may also make a claim in the event of either an aspect or full enquiry into the personal returns of the partners and directors and their spouses and company secretaries (for whom you prepare tax returns). This automatic cover will not extend to rental income in excess of £50,000 per annum before expenses) or any other business activities.
12) Application for a Judicial Review – An indemnity limit of £5,000 – This is an application (during the course of a valid claim under the Policy) to the Administrative Court to challenge a decision of an official where no other legal recourse is available to the applicant.
13) Code of Practice 8 Investigations – An indemnity limit of £5,000 – This is where HMRC Specialist Investigations conduct an investigation in accordance with Code of Practice
14) IR35 Status Check – An indemnity limit of £2,000 – Where HMRC write asking if you have considered whether a client falls within the scope of IR35.
15) IR35 Disputes* – This is where HMRC states a client should be subject to the IR35 legislation following a PAYE Compliance Visit or the issue of a notice under paragraph 24(1) Schedule 18 FA 1998. It will feature a disagreement over whether this legislation applies.
16) Interventions Cover (Informal Enquiries) – An indemnity limit of £2,000 – This is where HMRC issue a routine letter or telephone call with a view to obtaining clarification on particular points on a self assessment tax return without the issue of a statutory notice and not dealt with or excluded under any other section of this policy.’
There are no excesses on any of the above; however, this is on the understanding that negligible claims will not be lodged.
*Cover subject to where a suitable written contract exists and there is a reasonable prospect of success.
Please note this insurance excludes absolutely any loss directly or indirectly arising out of, contributed to, or resulting from any infectious or otherwise communicable disease.
Contact Us
Do you require assistance with your accounting? Don’t hesitate to get in touch with us: Pi Accountancy | Expert Business Advice | Gloucester & Swindon (pi-accountancy.co.uk)
We are not just accountants; we are Chartered Accountants with one of the most reputable and premium accounting bodies. We are registered and regulated by ACCA so you can rest assured that you are in good hands.