We have had Fee Protection Insurance cover for over 10 years, and overall if we had put the money aside and "self-insured" we would have been a lot better off than handing it over to the insurance company. Having said that the two or three claims we have had did help with time spent on the enquiries.
Interested to know if any other members in practice have gone down this route? What are your thoughts about pros and cons?
Replies (45)
Please login or register to join the discussion.
Yes for me
I have all client cover via TaxWise
I change clients a bit extra to cover the premium.
Has proven to be worthwhile recently given had 2 business records checks, 2 VAT visits and one CT return enquiry.
As a sole practitioner I actively use their tax helpline so that is another reason for me having it as other places change £50 per call. I must use it at least 2 or 3 times a month.
Taxwise
Do you know you can arrange cover on an individual client basis? That way the only clients who get it are the ones that attach some value to being covered. The important thing for us is that it is available and offered to all clients, but it doesn't make too much difference to us if a client signs up or not.
Self insure
Only need a couple of big claims for the self insure option to be a disaster.
Would you look at self insuring for your buildings and contents insurance?
I see it as peace of mind and build it in to the annual fee, I'm happy to cover costs and admin time.
Disaster?
Only need a couple of big claims for the self insure option to be a disaster.
Would you look at self insuring for your buildings and contents insurance?
I see it as peace of mind and build it in to the annual fee, I'm happy to cover costs and admin time.
But it's a disaster for the client not the accountant. Not quite the same as buildings and contents insurance.
Disaster
Lets see - client can't really afford to pay for work required to deal with HMRC enquiry/investigation.
So:
1. You do the work, the client pays, his business struggles on, he feels aggrieved at having to shell out several thousand pounds for something he feels his accountant should have done for him anyway (yes I know it wasn't included in the LOE but some clients just don't understand).
Client moves to another accountant.
2. You do the work, the client doesn't pay. You sue and get the money and lose what had been a good client.
3. You do the work and don't get paid and lose the client.
4. Client refuses help (too expensive), his DIY job is a disaster and ceases trading.
In my opinion just far easier to get insurance which costs about £25 a client.
Added to that as @marks says there's a free tax helpline with Taxwise.
Disaster
Lets see - client can't really afford to pay for work required to deal with HMRC enquiry/investigation.
So:
1. You do the work, the client pays, his business struggles on, he feels aggrieved at having to shell out several thousand pounds for something he feels his accountant should have done for him anyway (yes I know it wasn't included in the LOE but some clients just don't understand).
Client moves to another accountant.
2. You do the work, the client doesn't pay. You sue and get the money and lose what had been a good client.
3. You do the work and don't get paid and lose the client.
4. Client refuses help (too expensive), his DIY job is a disaster and ceases trading.
In my opinion just far easier to get insurance which costs about £25 a client.
Added to that as @marks says there's a free tax helpline with Taxwise.
I am not suggesting that insurance is not a wise and prudent move for those who want it.
I was just responding to your point that self insuring for this was like doing so for buildings.
You give a number or contrived examples where the accountant suffers because he client is not insured. Yes of course all those are possible outcomes. But the more usual case surely is that the client instead of the insurance company pays the accountant for doing the work. So the accountant is unaffected but it is the client who is worse off.
self insure?
I think I looked at this many years ago. Apparently, self insuring and offering the cover to the client makes you an insurer and thereby requiring regulation.
Yep - its illegal
Yep - its illegalI think I looked at this many years ago. Apparently, self insuring and offering the cover to the client makes you an insurer and thereby requiring regulation.
Lose?
@NH - take you point about having the funds if you self insure, but why? The profit you can make on charging on fee protection cover should mean that you make a profit on the service and have insurance to rely on.
So, using the £25 mentioned above and assume 100 clients - £2,500 annual cost.
Charge clients an average of say £75 - £7,500 additional fee income, £5,000 profit.
My understanding...
...for what it's worth is that insurance providers have to be registered in some way.
Certainly ICAEW advised pretty strongly several years ago against self insuring on the grounds that it was "akin to insurance" although I don't think they actually went as far as saying it was definitively illegal to do so.
That said, I've got a lot of sympathy for the OP's view and it has crossed my mind once or twice (and almost immediately crossed out again). But is charging a bit more on top of a service you provide to cover for additional work in the event of come-back the same as insurance? I'm not convinced personally.
Bad experience
I had a bad experience with one company a lot of years ago. They weasled out of paying on the grounds that HMRC said, in the opening letter, that the books weren't up to much and, even though we refuted this and there was no addition to profit, the insurers refused to cough up.
Their attitude left a very sour note with me.
You can generally pick fault with a lot of clients' bookkeeping. It doesn't mean that they're understating their income. I tell clients this story now and let them decide if their bookkeeping's up to it.
Fee Protection Insurance
Our practice also uses Taxwise on their Client Decide policy. Each client makes the decision to tale out protection or not, we do not pressure them or add it to their fees. Admittedly the take up rate is not huge but they are made aware of the pro's and cons and it is up to them.
Cliens that take out cover also have access to the Taxwise HR and employment advice line (we have a couple of clients who have benefitted from this alone) and we, as a practice, make good use of their tax/vat/paye helplines.
Options
We considered the options around 18 months ago. We had considered the 'self-insured' option as it seemed logical and not really different to the current arrangement and we would just work for free. We were advised it meant we should be registered.
We were exploring this further when we came across Copperfield. The service they offer is a client decides scheme where we pay them a percentage of the clients net fee charged. Therefore larger clients cost more than smaller ones (in terms of fee size).
We decided to also recharge clients on this basis and this is so far working well.
I do also though take into account KA's view in that if you cover everyone then you minimise the risk of losing a client. An options we did consider but without that having happened so far and having had very few investigations we decided against it for now.
FSA
Certainly Taxwise advised us when were leaving them and I also think either PFP or Abbeytax. One of which produced a document about the reasons why self-insurance was not possible. It was to do with registering with the FSA as an insurance provider. My argument was more that it was not a sale of insurance though as we would merely include it as a charge and then provide the service for free.
I was not overly convinced but quite liked the Copperfield's method otherwise I would have continued to explore it.
May be some confusion ...
... you cannot charge an insurance premium to a client without being authorised and underwritten etc. That would include a "hidden" premium by dint of fees being inflated to build a sinking fund to finance "free" investigation work.
As Andy has stated, Tax-wise offer insurance on aclient decide basis, what firms normally do is start off like that and them reach a tipping point where it is cheaper to insure the practice as a whole than just a specified percetage.
They are banded as Tax Return (with up to £50k unearned income, e.g BTL), sole trade, patnership, limited company (including directors TR's up the £50k above), all up to £10m tunover, after which a customised quote is required.
Prices range from £27 to £105, plus IPT - I have one special, £22m t/o @ £230 pllus IPT.
Self Insuring
People
It is illegal, end of story, it goes way back to the 5th Insurance Directive handed down by EU and adopted in the UK.
If you want chapter and verse message me. No doubt somebody will try 'reinventing the wheel with this but please save your time.
Um ...
... because the law says so?
It is akin to the banks hiding PPI in their loan repayments, and look what happened there!
Just because you call it a chicken, it still says quack.
Out of interest, you weren't involved in the conception of icebreaker were you?
Most of us are doing?
Some of us may choose to do additional work without raising an additional bill. That is not the same thing at all as saying "For this additional amount on your fee, we guarantee we will do all work on any enquiry arising for no extra charge". I've never worked for a firm that would consider any but the simplest of enquiries as not meriting an additional charge though.
Perhaps an analogy will help. A builder says that, for an annual fee, they will rebuild your house if it falls down for no extra charge. If he doesn't call it buildings insurance, does that mean it isn't, even though the effect is exactly the same?
Yes, but ...
... you are under-written by Copperfield.
As Malcom Richards says, this whole topic has been thrashed by interested parties and is legislated for as to what is and is not allowed, and that sees through any window dressing.
I don't bill insurance, I bill fee protection service, and charge VAT not IPT, but can only do so because I am under-written through tax-wise.
If you add a margin onto Fee Protection insurance, what are the implications? Do you require regulation?
OK ...
... Promoting, arranging and providing insurance are regulated activities, which means firms providing these services, or insurance products, must be authorised by either the FCA or be covered by their DPB under the DPB's FCA licence.
Using Copperfield you are doing none of the above, take out Copperfield and you are!
Using Copperfield you are insured, not the client, whether you pass any costs on or not is up to you.
well put
People
I watch this with professional interest but please when I see the PII claims and HMRC Enquiry Insurance stats from across all 'poviders' and Underwriters I am comforted for your reputations.
Advance fee's for work you may never do? Come on ,get real here. As to the comment earlier re huge pot of money accumulated... would it, how would you account for it, we call them reserves in the Insurance world and are regulated accordingly..........please leave Insurance to the Insurers, offer the 'provider' service to your clients as that, an 'Added Value Service', build your Client relationship. Your Clients will thank you, you won't loose sleep at nights, Her Majesty won't need to offer you Board and Lodging for up to 5 years!
@ Malcolm, the fees in advance are accounted for as 'fees', whether the practitioner chooses to then withdraw the funds from the company or leave them in the company is entirely their choice. Please, leave the accountancy treatment to the accountants :-)
There doesn't need to be any contingency or reserves, as we would have nothing to pay out, just our own time should any enquiry actually arise (certainly in the case of a sole practitioner anyway).
Personally I wouldn't self-insure, but I can see the attraction, and to me it seems entirely possible, and legal.
semantics
I'm falling into the trap here but one final consideration... If you had to involve an external Third Party Opinion/Advice as part of a 'free/inclusive' 10% loaded fee note scenario' How would the 'Third Party' be remunerated foc or.....?
Define turnover please
As an accountant you should be able to handle that. Because the standard wording in company accounts says it is for "goods and services supplied". On what accounting basis would you account for as turnover monies you have received for which (barring an enquiry in the same year) you have not supplied any goods or services? @ Malcolm, the fees in advance are accounted for as 'fees', whether the practitioner chooses to then withdraw the funds from the company or leave them in the company is entirely their choice. Please, leave the accountancy treatment to the accountants :-)
Description
@ Malcolm, the fees in advance are accounted for as 'fees', whether the practitioner chooses to then withdraw the funds from the company or leave them in the company is entirely their choice. Please, leave the accountancy treatment to the accountants :-)
There doesn't need to be any contingency or reserves, as we would have nothing to pay out, just our own time should any enquiry actually arise (certainly in the case of a sole practitioner anyway).
Personally I wouldn't self-insure, but I can see the attraction, and to me it seems entirely possible, and legal.
Aren't you describing deferred income?
Exactly ...
... just had an enquiry letter, it is going to take a couple of days to answer, could end up taking another 2 or 3 to settle, depending on HMRC response and attitude, could take another 10.
From the initial post the implication was this 10% uplift to cover "free" investigation work would be set aside and then paid accross as appropriate if any work was done.
What if you had 5 or 6 such letters at the same time, likely as HMRC target sectors and if that is your niche it may well happen, so you could be working for no fees for 6 weeks, but that would be fine as you would have the reserves stashed away to live off (yeah, right!).
But, regardless, what ever name you call it you are "Promoting, arranging and providing insurance" and that requires a licence, either through the FCA or your DPB.
My forehead is getting sore ...
... and the brick wall has a dent!
Because, you would now be "Promoting, arranging and providing insurance", not Copperfield - you can do this, but you need a licence from either the FCA or your DPB if you have one with their own FCA licence.
You could be a billionaire that does accounting for kicks, doesn't matter, the law is what it is and you would be in breach.
Taking money now for a possible future action based on a contingency is by definition insurance. It is not deferred income because there is no certainty you will have to do anything ever.
Out of interest, do you have a DPB? have you asked their advice?
I have had this insurance for over 10 years, I have had 4/5 claims. If I had self-insured and decided to stash away the uplift in fees for a rainy day I would have about 30/35k in the bank by now, even allowing for the amount of the 4/5 claims. Enough said as to the benefits.
And tomorrow you may get a letter for an enquiry that costs you weeks in time, needs specialist advice, goes to tribunal, need tax counsel etc. etc. which could leave you £20k down - personally I wouldn't want the risk, even if it were legal. I would just rather sling it at Taxwise to deal with leaving me time to service the other 99% of my practice properly.
Interesting comments...
...especially as I am set to meet a Taxwise rep in a couple of weeks time.
In the 15 years I have been in practice I have had 2 enquiries. Both taking an extra one or two letters to sort out (and a couple of phone calls arguing with HMRC)
I recently took over a firm that had been going for 10 years again with no investigations.
But I have also recently had a couple of clients who were a pain and could cause problems hence my meeting with Taxwise.
In the good old days ...
... a good firm got a good reputation with HMRC and other than the odd clarification query there were very few investigations.
As HMRC get more sophisticated IT skills and software and they get more and more target driven you will see more investigations.
But at the end of the day, if you go for a client decide plan then you have nothing to loose. If they don't take it they can't complain about a £5k bill for an in depth investigation!
However, if you don't offer it they can and will, and will probably walk.
I also think it will not be long before an accountant is sued for not offering FPI, after all, if you do not give the client the choice you are not giving best advice.
But a caveat, it works the other way - the FSB include it in their subsription, I think NECEIC include it and no doubt many of subsriptions do, you could be done for mis-selling if you push it too hard. I just let Taxwise do my mailout (for free on a pdf letterhead and scanned signature) and let the client decide. If they ask my opinion I say it is up to them I offer it for their piece of mind, tell them I make a small mark-up to cover admin but it is up to them.
TaxWise - whole firm cover...
We've covered our entire client base since 2004, first with CCH and very soon after with TaxWise and feel it's well worth the investment.
We charge clients more than the premium and make a fair amount of profit on the premium from TaxWise each year. We're also able to provide TaxWise with higher charge out rates for this type of work.
Every year HMRC has added new investigation powers (BRCs etc) and every year TaxWise manages to keep up. It will even cover you for a few hours to deal with a routine VAT or PAYE compliance visit.
We've claimed far more than we've spent over the years but it really comes down to peace of mind for clients and providing them with an 'all inclusive' service.
We give the cover free of charge to all new clients for the first year. They have the choice to not take it after that but 99% keep it.
Being able to say to the client 'don't worry, our fees are covered' is the best possible situation for us.
Free Helpline
Forgot to mention we also give clients free access to the Health & Safety, Employment Law & Legal advice helplines which they find extremely useful.
Doesn't cost us any extra but clients love us for it!
bells and whistles
Good to see the 'providers' are offering the same levels of service, it all comes down to premium / price. With a claims ratio in excess of 100% would you expect a rate rise at renewal?
Rate Rise
It's very unlikely that you'd have a 100% claims ratio but we have roughly 5-10 claims a year and our premium hasn't increased for 3-5 years.
TaxWise have previously given us the option to freeze the premium for 3 years which ties you in but is worth it if you have the right provider for your firm.
I'd expect a slight increase if your claims are very high, over 20 clients a year perhaps, but they are normally very reasonable about it. It all depends on your client numbers which you provide them with to arrange cover. If the ratio is very high in terms of claims I would expect some sort of increase. If it's standard they don;t tend to hike up the premiums.