Tax Investigation Insurance is a specific type of cover that protects you from the professional fees you will incur if HMRC investigates your tax affairs. These tax investigations can come from irregularities in your tax returns or entirely at random.
The insurance pays for expert representation, typically from your accountant or tax advisor, who handle the case on your behalf. While it does not cover tax you owe, penalties or interest; it ensures that you have skilled support guiding you through the process.
Why Might HMRC Investigate You?
HMRC carries out hundreds of thousands of investigations each year. You don’t have to do anything wrong for HMRC to select you. Many enquiries come from simple mistakes, mismatched data or even through random selection from HMRC’s data matching tool “Connect“. This system cross-references tax returns with banking information, payroll records and other government databases.
The most common triggers for an enquiry includes:
- VAT discrepancies
- PAYE and National Insurance compliance issues
- IR35 employment status reviews
Even sole traders, freelancers and small businesses are regularly subject to these reviews.
How Does Tax Investigation Insurance Work?
Tax Investigation Insurance is simple. You pay a monthly or annually premium, often starting from £75 per year. In return, you gain cover for up to £100,000 in professional fees.
If HMRC initiates an enquiry, you contact your insurer. They will coordinate with your accountant or assign a tax specialist to represent you. Your advisor will handle everything:
- Communication with HMRC
- Preparing and submitting documents
- Attending meetings
- Representing you at tribunals (if required)
Benefits of Tax Investigation Insurance
1. It Saves You Money
Even with the most basic enquiry can result in thousands of pounds in professional fees. Insurance protects your cash flow and prevents you from draining business resources.
2. It Saves You Time
Investigations can be lengthy. From document requests to formal meetings, each step takes time.
3. It Offers Peace of Mind
You never know when HMRC might get in touch. With insurance, you gain the confidence of knowing that help is ready and waiting.
4. It Levels the Playing Field
HMRC’s teams are highly trained. Without representation, you might find yourself out of your depth. Insurance ensures you have experienced professionals in your corner.
5. It Maintains Business Continuity
A prolonged enquiry can disrupt your day-to-day operations. Insurance ensures continuity by handling the burden to qualified specialists.
What Does the Policy Typically Cover?
A strong Tax Investigation Insurance policy will cover a wide range of potential enquiries:
- Full Enquiries (detailed reviews of all financial records)
- Aspect Enquiries (focused reviews on specific items such as expenses or allowances)
- PAYE and National Insurance reviews
- VAT checks
- IR35 investigations
- Code of Practice 8 Cases (suspected underpayment but not fraud)
- Premises inspections
- Schedule 36 Notices (responding to data and documentation requests)
Some policies also include:
- 24/7 access to tax advice helplines
- Guidance before formal enquiries begin
- Support for appeal processes and tribunals
How to Choose the Right Policy
1. Through Your Accountant
Some accountants (including us) offer this insurance as part of their service package. It may be cost-effective but could limit your choices of who handles the enquiry.
2. Standalone Policies
Purchasable directly from insurers or brokers. These give you greater control over your cover and your choice of representative.
3. Business Insurance Bundles
Some business insurance packages include limited tax enquiry cover. You should always check the maximum cover amount and the included scenarios. When choosing a policy, make sure it:
- Covers all enquiry types
- Applies to your specific trading structure
- Provides adequate fee coverage
- Gives access to specialists in relevant areas such as IR35 or VAT
Is It Really Worth It?
Absolutely. Random checks from HMRC are common and professional defence is expensive. A £75 (for example) annual premium could protect you from costs that could threaten your business.
For perspective, the average costs of one hour of specialist tax advice could exceed your annual premium. Over time, that small investment could save you thousands.
Contact Us
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. Knowing this, don’t hesitate to get in touch with us if you require assistance: Pi Accountancy | Contact Us