Tax investigation protection – what are the benefits?

Why tax investigation protection is worth having

In recent years, HMRC enquiries have been on the rise, with firms and individuals being investigated at random for compliance and accuracy of their returns. This compliance activity is thought to be generating over £20 billion each year for HMRC, with full and aspect enquiries providing a significant proportion of the sums recovered. As a result, many accounting organisations have begun to offer tax investigation protection to their clients.

Whether due to the increase in awareness of HMRC investigations or a better understanding of the advantages of this cover, uptake has been much more frequent in the past few years.

But not everyone fully comprehends what an HMRC enquiry can mean for their business, or how this protection can benefit them. Here, we take a look at the product and the benefits of it for individuals and businesses.

What is tax investigation protection?

Put simply, tax investigation protection (sometimes called fee protection) shields a client from the additional cost of HMRC enquiries. It enables the accounting firm providing assistance to claim back the professional costs of defending them. Anyone, be it a business, charity or individual, can be subject to an investigation, the aim of which is to collect more tax. As such, thousands of business and personal tax returns are scrutinised each year as are VAT and PAYE records.

The fact that these investigations are random means that even if you have submitted your returns on time and are confident in their accuracy, you may still have to undergo a time consuming enquiry. Even for smaller firms, the investigation can take several months. Although the cost of accounting support varies greatly depending on the business, thousands of pounds worth of additional work to deal with the investigation  may be needed, the cost of which is not included in your annual accountancy fee.  There is also the matter of settling any additional tax money that is found to be owed, to be considered.

What are the benefits of the cover?

The main benefit of taking out tax investigation protection is that should HMRC decide to visit or correspond with you regarding an enquiry, this can all be handled by your accountant at no additional cost. The fees associated with the defence can be claimed under your provider’s policy, meaning you are protected from paying potentially large sums to cover the additional professional fees.

Taking out this fee protection also means that should you come under investigation, you won’t necessarily have to accept excessive tax demands simply because you can’t afford the fees for a good defence. Paying a smaller monthly sum for protection enables you to call upon the service of your accountant if you need help to fight HMRC’s claim for additional tax.

In addition, it’s common for the cover to include access to a 24/7 business legal helpline, which can be used at any time.

What is covered under tax investigation protection?

There are several different providers of HMRC investigation cover, so there will be differences in cover and costs depending on which protection company your accountancy firm uses. As with many other types of protection, a maximum monetary value – £100,000 for example – of professional costs is covered, which is designed to pay for all correspondence with HMRC, attendance at meetings and work on appeals.

These schemes will usually pay out to defend a client for both full and aspect enquiries, VAT/PAYE/CIS compliance visits, IR35 status checks or disputes, or a gift aid inspection (for registered charities).

As mentioned above, a significant amount of the extra revenue generated by HMRC comes from full or aspect enquiries. A full enquiry is likely to be the most costly as it involves an extensive examination of the books and records that support entries made on the tax returns. An aspect enquiry is more specific, pertaining to particular entries where clarification only may be needed. There may be a detailed investigation into whether any claims for allowable expenses have been treated correctly for tax purposes, for example.

As with other protection policies, work involved with any enquiries that began before the cover was taken are not covered and neither is any enquiry in which dishonesty or fraud is suspected. Routine compliance work such as accounts preparation isn’t covered either as this is typically included in your normal annual accounting fees.

Tax investigation fee protection also relies on clients understanding their tax responsibilities and ensuring they are conscientious when it comes to filing returns. If returns are not completed and submitted properly and on time, the cover may be invalidated.

How much does this protection cost?

The cost of your  cover depends on the accountancy firm providing it and who their supplier is. The price of cover can start from £90-100 per annum but will depend on the size and particulars of your business, so it’s best to contact your accountants to obtain an accurate quotation.

Get tax investigation cover

THP Chartered Accountants offers tax investigation protection to its existing clients for up to £100,000 of professional fees. We can assist you with a range of HMRC enquiries, from a full enquiry to a straightforward IR35 check. With offices based in Wanstead, Sutton, Chelmsford and Saffron Walden, we are well equipped to assist businesses across the capital and the South East in the event of an investigation.

Contact us today on 0800 6520 025 or look on our website here to find out more about our cover or our full range of accounting services.