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Advising on Fee Protection could land you in trouble with the FSA

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11th Aug 2008
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The ICAEW has identified an issue for some firms with regard to fee protection insurance. It says that if your firm invites clients to pay a fixed amount in advance to cover a possible HMRC investigation, this may amount to fee protection insurance and you may be undertaking a regulated activity.

The same applies if you simply advise a client to go with a particular insurer.

In a letter to its members, the ICAEW says that this will depend on how you supply the service as there are different ways of offering the service with different consequences in terms of regulation.

  • Simply charging a fee when an investigation occurs is not a regulated activity.
  • Charging a fee now, with the intention of dealing with an investigation (should one arise) in the future, means you are probably acting as an insurer and therefore need FSA authorisation.

An insurance contract has the following features:
One party, A (ie, the client), will make one or more payments to another party, B (ie, the firm) so that B will pay A money or provide a service to it in response to a defined event (a tax investigation) happening to A the occurrence of which is uncertain (either as to timing or even if it will occur) the event is adverse to the interest of A (as tax investigations are likely to be).

The ICAEW says: "Advising clients to take out a particular insurance policy is a regulated activity and you need a designated professional body licence or FSA authorisation."

"You could offer a service where the firm, not the client, is insured and if you do this carefully, it is not a regulated activity."

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By AnonymousUser
29th Aug 2008 11:17

Professional Fee Protection (PFP) do actually have more than 2 options for accountancy firms.
The Practice Insure route is increasingly more popular with firms, however at PFP we do not require any minimum client numbers or premiums, hence our policies are CLIENT DECIDE!

Also accountants can provide "third party" literature to clients, PFP can deal directly with your clients for those firms who do not want the hassle of running their own "scheme".

For a copy of our helpsheet on "FSA GUIDELINES" please contact me on 01978 359171 or via email [email protected]

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Nigel Harris
By Nigel Harris
28th Aug 2008 21:07

The ICAEW is being particularly unhelpful here
The professional fee protection insurers - Abbey Tax, CCH, PFP, etc - offer two types of policy. For example, Abbey Tax offers the choice of two policies:

1. Practice Protector : insures your practice as the policyholder and does not require your practice to be authorised to conduct insurance mediation, nor become licensed through an ACCA Designated Professional Body (DPB) license.

2. Client Protector : follows traditional fee protection policies insuring your clients and requires relevant levels of PII and appropriate authorisation either through the Financial Services Authority (FSA) or an ACCA DPB License.

Practice Protector has been developed in conjunction with specialist insurance counsel and meets all Regulatory Requirements set out by the FSA. For those practices who cannot comply with the Regulatory Requirements or for those who simply do not want to, Practice Protector is the recommended alternative.

Simple really. And I seem to recall the ICAEW suggesting that practitioners could be deemed to be negligent if they didn't make clients aware of the existence of fee protection insurance! This is what we pay our fees for!!

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By AnonymousUser
13th Aug 2008 12:13

Dave
I think your second post is right: it's the way you sell it.

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By Dave Paveley
13th Aug 2008 10:46

I guess it depends on how you sell it..

If you say, for a fixed fee, you will prepare accounts, tax returns and deal with all correspondence to and from HMRC then I guess that is no problem.

If you write to all your clients and say for an additional £100 per annum I will deal with an enquiry should one arise, then that is stepping into the realms of insurance.

I believe you will also be offering insurance if you use fixed fees and you differentiate between those for whom you do cover enquiries (at a higher set fee) and those for whom you do not.

Of course most accountants wanting to 'self-insure' their clients in this way will want to differentiate the fee in order to show their clients how much cheaper it is to pay their higher rate rather than take out separate fee insurance with someone else.

And therein lies the problem for those accountants. It's illegal.

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By Malcolm Veall
13th Aug 2008 08:52

The difference is artificial
I believe Arnold is right. Offering a fixed fee for a service where the level/type of work required is common practice, (cf all the time/value billing threads). Why should including adding the professional responses to an Enquiry/Investigation to the list of points covered suddenly make the contract one of regulated insurance.

As an example: I routinely see VAT inspections carried out at my office, personally dealing with the inspector as much as necessary, (sometimes a significant task, sometimes all I need do is offer the inspector a cup of coffee & wave him on his way at the end of the visit. Only a small minority of clients will have VAT compliance visits. Neither myself nor my client see this as anything more than part of the package of services my firm offers. This is no different to, in one case, being prepared to roll up the sleeves and resolve a messy bank reconciliation left by a a client's departing book-keeper and in another slotting the bank balance into an Iris TB.

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By Dave Paveley
13th Aug 2008 07:33

The difference, Arnold..

..is that your clients are paying for a known product. Accounts and tax return. How you get to that final product is down to you and will vary case by case, year by year.

Dealing with an investigation/enquiry is not a known event. It may never happen.

Therefore you are insuring against an uncertain adverse event.

This is nothing new.

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By AnonymousUser
12th Aug 2008 17:23

Fixed Fees
If I charge a fixed fee to a client for all accounting and tax services (excluding enquiries and investigations) for the year, regardless of the amount of time it takes me (i.e. regardless of any additional bookkeeping for greater-than-expected turnover; additional reconciliations to identify client's bookkeeping errors; corresponding with HMRC on routine payroll enquiries and payment allocations etc), then they are making a payment to me in response to a defined event (additional tax and accounting work), the occurrence of which is uncertain (there may or may not be reconciliations or extra bookkeeping to perform).

How does this differ, from an insurance point of view, to charging a fee which covers all tax and accounting work, including enquiries and investigations?

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By AnonymousUser
12th Aug 2008 12:01

FEE PROTECTION HELPSHEET
Please do contact me for a copy of our FSA Guidelines regarding the provision of fee protection insurance

Telephone 07887 543148
Email [email protected]

Professional Fee Protection Limited (PFP)

Many thanks,
Rob Griffiths

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