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Tax Enquiry Insurance

Is it worth it?

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I am currently considering getting a practice wide policy, I am not interested in the additional admin of managing client specific policies. 

My question is to those who already have a practice wide policy - is it beneficial?  I have now been trading for over 7 years and have never had an investigation or enquiry.  I know HMRC are likely to be more proactive to try and recoup finance after all they have paid out over Covid, but what is the current enquiry rate and realistically how much higher is likely?  I have had a broker claim that if I was insured I could claim for the work dealing with HMRC issues (i.e. errors on clients accounts due to HMRC incompetence - lets be honest we all spend lots of time on these!), I am unsure this is actually correct?

Also what is the level of admin required when making a claim, if the claim process takes several hours to complete and chase up then surely that discounts the value of having the initial policy.

I would love to hear some perspectives on whether it is worth it or not?

Thanks in advance!

Replies (20)

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By Mr_awol
26th Oct 2021 12:27

Will your clients pay for your time if they get an enquiry. Will they (or you) see it as your duty to deal with it, because you filed the Returns. Will they pay additional fees on the back of the whole firm policy, or will you have to absorb it?

How many clients do you have? How many staff? What is your client base like - are they all simple clients with modest incomes? Do you have any that are higher risk for any reason? Do you have the time and/or technical ability to deal with an enquiry - or would you want/need to sub it out? (this isnt an accusation. we normally deal with our own and claim against the insurance for time spent, but more complex ones we just get the insurers' consultants to deal with it entirely).

Do many of your clients have cover elsewhere - via FSB etc?

Those are the starting points you need to consider before you make the final decision on whether you feel the comfort blanket is worth the cost and/or fee increases that may result.

We have it, we use the advice line a bit. We occasionally get the external consultants to advise us or to take on enquiries where we think the client will get a better result that way. We charge it on though, and take-up is low-to-medium.

I would be surprised if you could claim for dealing with basic HMRC idiocy (weird coding adjustments, netting off under/over payments, etc). I think you'll need a HMRC letter with some sort of enquiry, check, or review, before you can claim your time costs.

I think we have an allowance in each claim for 'claim administration' which covers the cost of raising the claim itself, plus a bit.

Thanks (1)
Replying to Mr_awol:
By tracyannw
26th Oct 2021 12:39

Thanks this helps and brings up a couple of issues I hadn't considered. I can see it being a very low uptake if it is optional which is another reason I would prefer practice wide. And it will be built into the existing fees. I would say the client profile is average risk, we actively steer clear of those higher risk clients.

I never thought about being able to pass on the work to the insurers consultants that is appealing. By the allowance in each claim for claim administration do you mean the insurer covers your time for the raising of the claim?

Thanks

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Replying to tracyannw:
RLI
By lionofludesch
26th Oct 2021 13:48

How many enquiries have you had in the last twenty years and what was the cost of them ?

What's the premium being asked ?

Is it worth it ?

I've probably spent less than a week on enquiries this century. If I'd added a tenner to every bill I'd issued, I'd've covered my time costs and been quids in.

There just aren't enough enquiries these days. Insurance cover is easy money for the insurers.

Thanks (4)
Replying to lionofludesch:
By tracyannw
26th Oct 2021 15:59

Thanks for your honest response that was kind of what I was thinking but as I have had no real experience of investigations I thought I may have been missing something.

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Replying to tracyannw:
RLI
By lionofludesch
26th Oct 2021 16:03

tracyannw wrote:

Thanks for your honest response that was kind of what I was thinking but as I have had no real experience of investigations I thought I may have been missing something.

Nobody's got much experience of investigations these days.

Or enquiries as they're now called.

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Replying to lionofludesch:
paddle steamer
By DJKL
02nd Nov 2021 11:49

If HMRC start actually conducting what used to be back duties, with all the analysis of records , mark ups etc, I would come out of retirement to work for a niche practice helping with them, as I really enjoyed doing them.

Apart from a couple of aspect enquiries, one re pension contributions and the other re whether accrued pref dividends were "paid", (2-0 to me) I have not worked on one since I left full time practice in 1999, though that was a gem evolving from a District Enquiry to one involving Special Compliance (It settled after I left with an eye watering sum due assessed over 20 years)

Thanks (1)
Replying to DJKL:
RLI
By lionofludesch
02nd Nov 2021 13:22

DJKL wrote:

If HMRC start actually conducting what used to be back duties, with all the analysis of records , mark ups etc, I would come out of retirement to work for a niche practice helping with them, as I really enjoyed doing them.

Oh, the meetings could be great fun, couldn't they ?

I'm not sure they be so much fun now though. I don't think I'd bother coming out of retirement, to be honest.

Thanks (1)
Replying to lionofludesch:
paddle steamer
By DJKL
08th Nov 2021 18:00

Yes- clients can say some really stupid things under pressure.

We coached ours, "if you are not sure say nothing, say you have to check" etc, and then there was untangling the minutes sent to you post match.

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By OldParkAcct
26th Oct 2021 14:43

I think you have answered your own question. In 7 years you have had no enquiries it’s unlikely to be cost effective.

In 20 years the only full enquiries I have dealt with are ones that had no adviser prior to the enquiry starting.

If the return is submitted on time, tax paid on time and income matches the lifestyle then chance of an enquiry is negligible.

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Replying to OldParkAcct:
By tracyannw
26th Oct 2021 16:05

Thanks for your reply that is what I was really looking for, was wondering if I was unusual in not having any investigations over this period but as you say if the work is lower risk and the income/expenses match the lifestyle and the work is done on time then the risks of an inspection are lower. Good to hear that you have only really had 1 enquiry in 20 years that is a level of risk I am happy with.

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By ireallyshouldknowthisbut
26th Oct 2021 15:43

I have had a scheme for a number of years, full practice cover.

All clients are opted in, and are asked to pay a small fee £20-40 per annum towards it.

Some opt out and if an investigation arose I would charge them as normal for our work, as its my practice who is covered not them. Some other clients i don't include as I consider them risky, and some are not covered by the policy (a couple of large ones)

The total fees exceed the premium by around £1k per annum so I make a small profit on it per annum, but the reality is its probably a waste of money. I am not sure I would set it up now as we just don't get any investigations. I keep knocking the premiums down by threatening to walk and down they come...and I must admit I have not offered it to new clients for some time.

I am not sure if I would set it up now but at the same time I don't have any incentive to change the current set up.

Thanks (1)
Replying to ireallyshouldknowthisbut:
By tracyannw
26th Oct 2021 16:06

Many thanks for this honest reply - it really helps with my decision.

Thanks (0)
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By Winnie Wiggleroom
27th Oct 2021 07:09

we have a practice wide policy with taxwise, probably made 4 or 5 claims over the past few years, one big enquiry and the others small VAT enquiries, we have certainly paid taxwise more than they have paid us but thats insurance isn't it?

two reasons I stick with it, firstly I probably call their expert helpline a few times a year despite having been in practice for over 20 years there are always things you come across you have not dealt with before, secondly who knows when the next enquiry is around the corner

Thanks (2)
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By Roland195
27th Oct 2021 12:06

The figures quoted by the insurers on their brochures do not reconcile with my (or it seems anyone else's) experience of the frequency or cost of enquiries. I am certain if I looked the last 15 years or so out, they claim that both are increasing each year due to HMRC's latest scheme but does not reflect the reality and is mathematically impossible given the reduced staff.

To be fair, I found the claims process is straight forward enough however I have only recent experience of small claims less than £250. I suspect that a large scale enquiry would not be the license to print money it's made out to be and would be concerned that the clients I worry about the most would fall foul of the exclusions - insufficient records etc.

The other issue is making sure client's understand the insurance only covers the cost of the fees - you would be surprised how often this is misunderstood.

So we have an insurance product, sold via unconventional agents without reference to circumstances or suitability that may prove to be of questionable value - what does that sound like?

Thanks (1)
RedFive
By RedFive
27th Oct 2021 12:17

We don't have it.

10 years in Practice. 1 vat enquiry about 5 years ago then nothing .....until..........last month a sole trader enquiry, boxed off and sorted in a couple of weeks.

But then a full limited company enquiry and also check into the same year of the Directors PTA. HMRC want every single invoice for the whole year in question, full legder prints, journal narratives etc etc. The request letter was like war and peace.

We do suspect a 'tip off' to HMRC for this client about about living beyond means but there you go. Looks like all the staff manning furlough and SEISS etc are being redistributed!

Thanks (1)
By Husbandofstinky
02nd Nov 2021 10:48

To be honest, I only thought firm wide insurance was a wheeze for practices to make a few extra quid, or as some would call it 'added value'. I have heard from some new customers that they were being charged a small fortune by a local firm for this privilege.

As you pointed out, no enquiries in seven years. I have had three in twenty five+ years all of which was as a result of the previous agent going awol. The last one was banged up in prison and they had simply gone through his client list.

That said, it is insurance and one day it could easily pay for itself.

Thanks (1)
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By Donald MacKenzie
02nd Nov 2021 10:51

I do not offer insurance and actively tell clients moving to me that they do not need it. Enquiries are few and generally simple to respond to for my straightforward clients. Insurance policies do not offer good value to clients.

Thanks (2)
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By sallyrichardson
02nd Nov 2021 10:54

We got cover 3 or 4 years ago with Markel. We charge all clients £20-£40 per year to be covered and it's compulsory - the fees cover the cost, we're not aiming like some to make a massive profit from it. We have had one major claim that was very easy to do the paperwork for the claim - the enquiry has dragged on for 2 years and the claim is now nearly at £2k - so well worth the cover. A letter showing the investigation was required so I don't think you could claim if it wasn't an official enquiry. The time that this enquiry took had nothing to do with the returns we submitted - it seems that if they can't find anything wrong they just keep asking more and more questions and wanting more and more paperwork, emails etc - in this case they were like a dog with a bone. We had another new client coming in that was caught over the VAT threshold, but as a new client wasn't covered - and the time it took to sort this out for them was considerable. So although enquiries aren't that common - they do still happen. We review if we want to keep the cover every year, but most clients like the peace of mind and consider it a very small outlay to get that peace of mind.

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By Andrew Lee
02nd Nov 2021 11:03

For a number of years we offered cover on a client decide basis and approximately half our client base took up the cover. We made a good profit from this, but the admin was very time consuming and I was always uncomfortable about the marketing materials we were provided with when sending out renewal terms.

Then, one year, I was particularly busy at renewal and I just couldn't face the time and effort required, so we switched to all firm cover and I was amazed to find the cost was little more than we were paying before at under £10 per client on average (650 clients). We then used this as a marketing exercise and informed all our clients they were now covered and we absorbed the cost within our normal fees.

Like you, we rarely have any enquiries, but both we and our clients use the free technical support lines, which are pretty good for most queries that arise (Markel Tax formerly Abbey Tax). We use specialists for paid consultancy, although Markel do offer this too.

It was a huge relief when we made the switch and I am much happier not to have to make a separate charge, but that's perhaps just me.

Thanks (1)
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By JD
02nd Nov 2021 18:25

Also have a firm wide policy in the event we should have an enquiry (not had one for quite some time) but the real benefit is perhaps the advice lines, somewhere to point clients if they are having a HR/legal problem (both of which saves us quite a bit of time), and CPD webinars for you and staff.

Adding £10 to a client fee, more than covers it so no complaints here

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