Fee protection - Marketing matters. By Dan Martin

With HM Revenue & Customs' ever increasing clampdown on tax evasion, taking out professional fees insurance (PFI) ' also known as fee protection - is fast becoming one of many firms' top priorities to ensure costs are covered should an enquiry occur. Professional bodies recommend accountants at least make clients aware that the service is available but just how do practices go about getting clients to sign up to a scheme and then ensure it is effectively administered?

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Comments
dahowlett's picture

There is a good argument

dahowlett | | Permalink

for insisting that HMRC investigations that trigger an insurance claim be passed to 3rd parties. Here's a few not in any particular order.

People like Simon Sweetman are far more experienced than the average practitioner. They know the wrinkles. the value they deliver far outweighs the cost, which the client is largely shielded from anyway.

If your client is selected for investigation and assuming it is on reasnable grounds, then you don't know your client as well as you think.

Passing on to a dispassionate 3rd party is no reflection on you and may well get the job done more effectively.

There need be little fear of losing the client (which is the real objection - isn't it?) if you've otherwise done a good job AND have an ongoing active relationship with the client. You can argue that an otherwise great relationship can be soured by an investigation you manage.

3rd parties will have to talk with you along the way - you might even learn something you can apply in other areas. That's how I looked at my relationships with the then Arthur Anderson and Baker Tilly.

What's right for clients

dcunliffe | | Permalink

Nicola is correct that the FSB, and some trade associations, include a form of cover in their subscriptions. However, these schemes do not offer the extensive cover of an accountancy practice insured scheme. FSB-type schemes also often insist on an outside consultant being appointed to handle any tax enquiry that may arise, which means that the client's own accountant, who knows the client and his business best, cannot represent the client (and be paid for it) in an enquiry. This may not be in the client's best interests.

As for small print, it's easy to be cynical about insurance companies and small print but the proof of the pudding is in the eating. The best fee protection providers do not put unnecessary obstacles in the way of claims and, in my experience, most practices which have these schemes are perfectly happy with the way that claims are handled. It's also a fact that many clients are interested in having such insurance and they are glad to have paid the annual premiums when faced with the costs of an expensive tax enquiry.

I have to declare an interest in that I now work for one of the providers (Qdos) but, before that, I worked in practice for more than 15 years and have extensive experience of how these insurance schemes operate.

Not in HMRC's view...

dcunliffe | | Permalink

James, in HMRC's view, fee protection insurance premiums are not allowable deductions - see HMRC Manuals paragraph BIM46452. However, as far as I am aware, this has not been tested and there are arguments against their view.

Fear of clients is unfounded

MBK | | Permalink

We've been running with IRPC (now CCH) for about 8 years. For the first couple of years we asked clients if they wanted to join and got about 50% take up. But the admin was horrendous.

So, after a couple of years we bit the bullet and told clients we were making it compulsory - although we did it very nicely of course. Hardly a squeak. It allowed us to reduce the amount charged per client and made the admin really simple - one mailing a year.

We add the charge to the WIP ledger and just bill with other stuff when we would otherwise normally bill.

Our experience has been that having the cover is a useful marketing tool - we have picked up clients in competitive situations because of it, although that would never be a reason to take it on.

Yes there are some gaps in the cover. You just need to be savvy about that when dividing the block premium up between the clients.

Up front investment of time and resource is required to initiate fee cover - but I heartily recommend it to my fellow professionals.

dahowlett's picture

What lessons?

dahowlett | | Permalink

Apart from the insights provided by GJ about budgeting and the internal discussion issue, where's the advice about approaching clients? Why do I 'need' a database? What am I getting from that? Numbers without context are meaningless.

There's a lot of FUD here. Given the number of business and HMRC resources, mathemtically, you cannot say "It's not a case of 'if' but 'when.'" Tell it as it is - insurance is something you pay for in the expectation that disaster won't strike, but which provides comfort *if* it does. It's part of the cost of doing business.

How about considering the quality of work undertaken as a factor in driving premium levels? How about reviewing policies around client responsibility? How about using the firm's website as a communications mechanism around the issues?

I'd argue that small firms are very well placed to demonstrate benefit in ways larger firms might easily find difficult to articulate beyond re-affirming the brand.

Small Print

AnonymousUser | | Permalink

Read the small print in these insurance policies and you will get to know exactly what you are covered for. Then you will know why clients aren't interested.

Other Cover

ancpaddy | | Permalink

If your clients are members of the FSB then they are already have this cover through them.

Part 2: FPI - can we reasonably recommend this?

Anonymous | | Permalink

Crucially, this role of insurance as a bastion of fair play is possible only where the insurance company can and will meet reasonable claims made. If, for whatever reason, the cost : benefit equation falls away, for either party, the system will wither and leave a dangerous vacuum. Insurers seem to be straining to contain costs and fees paid. Using their in-house consultants may appear to help them, but is not always the answer for practitioner and client. Indeed it may be quite inappropriate in some cases, and does not come without complications and cost to the practitioner. Even though a insurance company consultant may be working an Enquiry case, the practitioner as long term adviser, must remain closely involved for the client and will inevitably spend substantial time (outside insurance cover) to guide and support the Enquiry. Preparing and submitting claims is time-consuming and exacting – and frequently irrecoverable. Having then to struggle for settlement of fair claims submitted, is a shocking further waste of professional time and does little to help establish an essential atmosphere of trust.

In summary, I question whether professional advisers and their professional institutes can so readily recommend or so ardently market FPI? Before we go further along the road of promoting this "support", should we not see some independent research into claims records and on-costs related to this aspect of FPI? Has any survey been done of those who held – but no longer hold FPI? With rising incidence of Enquiry, the role of FPI could prove either the foundation of a fair process - or its undoing! As taxpayers, we must all hope fervently for the former.

Part 1: FPI - can we reasonably recommend this?

Anonymous | | Permalink

I have for many years held Fee Protection Insurance (FPI) as one of a tiny percentage of practices. I have been a staunch supporter and promoter of FPI but am becoming deeply concerned recently to find that some FPI cover is questionably serving our clients - and taxpayers in general - as effectively as it was intended to do. As more claims come on stream in our smaller practice, some providers seem either to be imposing increasing use of their own in-house consultants and / or otherwise finding reason for severely cutting back or regularly contesting claims – so often, and to such an extent that it is making FPI cover questionably cost effective.

Above all else, for many practitioners, FPI should be the single most important means of allowing us to help our clients to stand their ground and to ensure that we can see a case through to a fair conclusion where otherwise professional costs might militate against such action. Many a case has been settled reluctantly on the grounds that the professional fee costs of continuing to contest the position (however valid) would exceed the tax claimed. For many practitioners such settlement is unpalatable and is arguably unfair extraction of money (?extortion?)rather than fair and correct tax payment. FPI should be the answer. FPI should allow us as agents to defend and maintain equity and high standards.