Notifying PII insurer of an HMRC review

Notifying PII insurer on an HMRC review

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Should you advise your PII insurer immediately that HMRC start checking a client's tax return?

We have a situation where an HMRC letter was received checking a client's tax return in September and requesting further information, our PII insurance was renewed in October; as a result of the review HMRC decided in December that the client has underpaid tax and they are now reviewing penalties. 

Our insurer broker has indicated we may not be covered if penalties are imposed and the client makes a claim because we did not disclose the HMRC review at the time of the insurance renewal. 

Its the first time we have had an HMRC review and to be honest I thought once HMRC had received the information requested that would be the end of it so didn't think there was anything to disclose at the insurance renewal.

Won't make that mistake again. It does seem a bit sharp though to have had full PII cover over in place over many years only to find you may not be covered

Replies (10)

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By johngroganjga
03rd Feb 2020 15:40

I can't see that the review itself is a circumstance. Matters coming out of it might be.

Why do you think that the client may have a claim against you to recover his penalties?

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By Rammstein1
03rd Feb 2020 15:43

Ask for the penalties to be suspended by HMRC is possible.

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By Wanderer
03rd Feb 2020 16:06

I can't see that a start of an HMRC review is likely to be something that requires notification. I would have thought that the time that there is a hint that the client may make a claim against you, or you think you may be culpable in some way, would be the relevant trigger. Obviously check your policy details but I've never notified our PII insurers just because HMRC are asking questions.

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By Matrix
03rd Feb 2020 16:11

When you renewed did you have to represent that there were no open HMRC investigations? I don’t recall these questions being in the renewal.

Why would the client have a claim against you? Did they provide this info for the return?

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By Openhouse
03rd Feb 2020 17:48

Thank you for these helpful responses. We do not have alot of experience of client reviews and certainly never one that has produced a negative result so it's new ground for us. Perhaps I'm worrying too much!

The insurers renewal pack did include what they called a fair presentations paragraph requesting information that "might affect the underwriting decision" but although HMRC had instigated a review of the tax return before renewal I didn't see the HMRC review as anything other than routine or anything that might lead to a potential problem

I am very comfortable that the advice we have given was reasonable.

No claim has been made but I thought it sensible just to let the insurers know HMRC had disputed a tax return after a review and that there was a possibility the client may suffer a penalty if HMRC deem there was a careless inaccuracy. The client might then in turn seek redress from us. I don't think there was a careless inaccuracy and that reasonable steps were taken to complete the return correctly.

We prepared the tax return based on information provided by the client and included was a PPRR claim on a property the client had sold. The circumstances were complicated but I researched the rules and case law and sought some guidance and determined the claim was reasonable. HMRC later instigated a "check of your client's SATR" requesting information and clarifications and after several exchanges of letters disallowed the claim. Client has accepted HMRCs decision.

I think I was thrown by HMRC's letter discussing potential penalties and so at that point thought it sensible to notify the insurer. I was very surprised when the broker advised that as the review started before the renewal any claim might not be covered.

In answer to John I can't think of any reason why the client would have a claim against us because I believe we took every care to research the issues before submitting the return. Just a shame HMRC didn't agree with our interpretation.

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Replying to Openhouse:
RLI
By lionofludesch
03rd Feb 2020 18:11

Openhouse wrote:

In answer to John I can't think of any reason why the client would have a claim against us because I believe we took every care to research the issues before submitting the return. Just a shame HMRC didn't agree with our interpretation.

If the client has no claim against you, you have no claim against your PII policy.

In which case, it's none of the PI company's business.

Personally, I'm surprised at the suggestion that you should report any old HMRC enquiry. I would only report anything that started looking like it was an error on my part. That's the point where the PI company start to have an interest.

Ask for written confirmation from the insurers. Or change insurers.

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Replying to lionofludesch:
Psycho
By Wilson Philips
03rd Feb 2020 22:28

Normally I would agree. However, it appears that in this case the client’s tax position depends on a view taken by the agent as to the filing position. As soon as it was evident that HMRC were querying that treatment it would have been prudent to advise insurers. Not a black and white issue though.

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By Openhouse
20th Feb 2020 09:12

Many thanks for helpful feedback hopefully HMRC will accept reasonable care was taken and so will not impose penalties

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Replying to Openhouse:
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By unearned luck
21st Feb 2020 04:00

1. Originally you were of the view that PRR was due and now you are of the opposite view. I wonder what new facts/HMRC arguments made you change your mind? I trust that it wasn't pusillanimity in the face of an HMRC assertion.
2. Careless and deliberate penalties are imposed on taxpayers for the 'bad' things they do. Taxpayers are not punished for the defaults of others (eg those of their accountant). Acting upon the advice of one's accountant when that advice proves to be wrong is an error made despite taking reasonable care provided that the advice given is not obviously wrong or the taxpayer provided duff facts to the accountant. In cases of doubt it might be helpful to explain the position taken in the white space, but see point 3.
3. However, be aware of the daft line of argument advanced by the CoA in Tooth and taken up by the FTT in Clift that deliberate conduct does not require any blameworthiness on the part of the taxpayer to be proved. Tooth/Clift also says that an error can't be absolved by a white space entry, which makes the white space otiose and thus unhelpful to HMRC if taxpayers stop using it. Counsel for HMRC should stop trying to win at all costs. The SC is to look at Tooth, we might then get a sensible definition of 'deliberate'.
4. I can't thus see how the threat of, or the actual imposition of penalties is a matter for your insurer. Either the client acted reasonably by checking the return before signing it and in accepting advice that was not obviously wrong (and thus no penalties) or he didn't check the return or he acted upon advice that was obviously wrong 0r both in which case he only has himself to blame for the penalties imposed upon him.
5. I don't agree that taxpayers are required to or should incur the cost of a second opinion solely to demonstrate reasonable care, unless the primary advice is disqualified advice or they are doubtful that the primary advice is correct.

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By Openhouse
23rd Sep 2020 13:40

The episode had a reasonable ending. Whilst HMRC did not accept the claim for PPR in the end they accepted that all parties had acted reasonably so although some extra tax was payable no penalties were imposed and so there was no PII issue!

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