John R
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Fee protection insurance confusion

Fee protection insurance confusion

It has been stated on this forum that the main accountancy bodies and the FSA consider that any charge made to clients to cover potential accountancy costs resulting from a future tax enquiry, amounts to the supply of insurance and this cannot therefore be offered by non-regulated firms.

Some of our clients have taken up fee protection insurance on a "clients decide" basis but the take-up has been low due to cost. We have been exploring the possibility of insuring this firm and then passing on a (much smaller - even when adding 20% VAT) annual charge to all clients who wish to be "covered". The insurance companies all state that this arrangement does NOT amount to the supply of insurance to our clients and we can charge what we want for this extra "accountancy service", billing separately for it, if we so wish. We would then claim from the insurance company, the time costs incurred in the event of an enquiry.

If we go ahead, the annual premium will be substantial (about five times more than the average annual time costs on enquiries based on our experience of the past ten years), and it occurred to us that we could perhaps make the extra charge to the clients in exactly the same way as suggested by the insurers, but we would not actually take out a policy. We fully appreciate the risks in not having cover but we would be prepared to take that risk.

The fact that the insurance companies are confident that the charge we make to the client is NOT insurance, appears to conflict with the views of the above bodies. Can anyone explain this apparent conflict?


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By John R
02nd Apr 2012 10:55

Any thoughts


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02nd Apr 2012 11:29

My experience

We paid many £,000's for block cover for a few years and didn't make a single claim. We added the cost to the fees of those clients who agreed they wanted the cover, and bore the cost for the rest.

A colleague looked into the situation you are considering but didn't go ahead, but I can't remember the exact reason.

At a guess, maybe it is because we are 'buying in' specialist services and then selling it on, the same as we could do with other services for which we are not authorised to provide. You are not providing the Insurance direct but as an intermediary, but if you don't buy the insurance then you yourself are providing the insurance. 


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02nd Apr 2012 11:37

You are not alowed to self insure in the way you suggest

This contravenes the various leglislation surrounding insurance. Ring your institute and ask them They will tell you the same thing.

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By John R
02nd Apr 2012 14:23

Thanks Shirley and Zara, for your comments.

Zara, I realise that the main Institutes say you can't do this (see my opening paragraph). My question is how can their view be reconciled with the insurance companies' contention that it is OK to bill the client "additional accountancy fees", without mentioning that it is to cover insurance? If the insurance companies are correct and I am billing for additional accountancy fees, why should it make any difference whether I have insurance or not?


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By prigney
04th Apr 2012 16:15

Most Fee Protection Providers provide the option of a Regulated or Non Regulated Scheme.

Using the regulated option the practice has to be FSA authorised or hold a DPB licence to sell insurance as the practice sells individual insurance policies to its clients and charges IPT at 6%.

For those practices that arent authorised to sell insurance they can opt for the non regulated route. Under this option the practice is the policy holder and provides cover to clients as a service on which they charge VAT.

Most professional bodies consider it best practice to offer cover for clients whether that is via a voluntary client decide scheme - were clients can decide to opt in a pay for the service (there is usually no minimum contract value to these schemes) - or the all client scheme when the practice decides to automatically cover all the clients whether they pay for the service or not. The premium costs for the all client option are usually vastly reduced over the client decide premiums.

Most providers will offer marketing and mailing support together with a fee collection service if required to minimise the administrative work involved with the scheme

A lot of practices are considering offering Fee Protection for the first time or switching to all client schemes for the peace of mind of knowing that should an enquiry arises on a covered client they will be able to recover costs.

Depending on the level of cover taken some providers ie TAXWISE ( ) will cover any written HMRC corrspondence into any submitted return even when it isnt a formal enquiry notice. Most policies will cover PAYE/VAT visits and the Business Record Checks, when they are reintroduced, areas were many accountants do not recover costs at present orcertainly not in full.

Claims should be an easy process and the fully electronic online system offered by TAXWISE for instance to make and manage claims simplifiies the whole process.

If you add the additional complimentary services ususally provided by the Fee providers such as TAX/VAT advice lines, Employment Law/Health & Safety Advice Lines the whole package can be attractive whislt at the sametime improving the level of service to clients.

Its worth remembering also that unlike a few years ago most people in business are now aware of Fee Protection and if nothing else may like to have the opportunity of being offeerd the service and its potential cost saving should an enquiry arise. 


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