HMRC enquiries and fee protection cover
I have recently started offering and speaking to clients about professional fee protection insurance and have seen a fairly encouraging uptake, but not in all cases!
I recently met with a long standing and respected client and was quite taken aback when he claimed that “if you had done your job properly in the first place, then HMRC would not be making an enquiry”.
Of course even if you are happy that your accounting records and tax affairs are in good order, this does not mean that you will not be selected for an enquiry.
After explaining to my client that HMRC are empowered to look into the tax position of any taxpayer, regardless of whether all returns and payments have been made on time, I went on to explain that clients may have to justify not only their accounts, but also their personal income and lifestyle in the event of an enquiry.
It is fairly common knowledge that HMRC are carrying out more enquiries in an attempt to close the tax gap between what they believe is due to them and what they collect. Added to the new, far-reaching powers of inspection it is likely to mean that the number of enquiries will continue to increase and that they will become more in-depth.
Investigations can take considerable time to resolve, typically 19 months (although many take several years). During this time, advisors’ time and therefore fees could rapidly mount; but subject to certain limits and exclusions, would be covered by the fee protection product I am able to offer.
With the infamous mis-selling of PPI in the past, and an extended warranty being offered with pretty much every consumer purchase we make these days, clients will of course act on personal attitudes to insurance policies and risk. However, having had first hand experience of what can happen should a client be picked at random for inspection, I am pleased to be able to offer this type of product and hopefully offer peace of mind in the event of an enquiry.
How much can a tax investigation cost my business?
Tax investigations can be incredibly costly, with various elements adding up to create a financial headache for small business owners.
While it might not seem like a financial cost at first, a tax investigation can eat up a large portion of your time which will have a cost implication.
You will often be called upon to provide additional information during the investigation, working alongside accountants and other financial specialists to respond to requests.
If you’re part of a small team of salespeople or a sole trader for example, this could severely hamper your business and your ability to work - your ability to sell, offer services to customers and, ultimately, make money.
A tax investigation is carried out to calculate if you owe any money to HMRC and how much that is. That repayment can vary depending on the findings of the investigation.
You should also be aware that any repayments you make could be subject to additional fines – if the errors in your original were found to be deliberately misleading you could be asked to pay a penalty that ranges between 20 and 70% of the extra tax you are required to pay.
You should also factor in the general accountancy bills that might build up through the investigation. In some cases, these additional fees can be significantly more than the amount you’re being asked to pay HMRC, especially in a lengthy investigation where you’re waiting on a final fee from HMRC, all the while utilising an accountant who has on-going fees to be paid.
This is why I am continuing to highlight the benefits of our fee protection service to new and existing clients and offer a package designed to reimburse the cost of specialist financial representation in the event of an enquiry, tailored to cover corporate, partnership, sole trade and personal taxation matters.