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Firms back fee insurance. By John Newth

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12th May 2006
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The majority of accountants view fee insurance as a valuable part of their everyday client services, according to a new survey of AccountingWEB members.

Over 90% of the 167 firms surveyed deal with tax investigations on behalf of clients, and just over 80% are conversant with professional expenses insurance. Just under half of the firms surveyed hold a policy personally, but over 60% have informed clients about this type of insurance and recommended PEI to all clients. However, over 20% still operate some form of self-insurance regarding tax investigation of clients.

Claims
30% of those surveyed have had a negative claims experience and 25% of respondents have been refused a claim on behalf of clients. It is not clear whether claims refusals have been the result of disputes regarding claims that accountants felt were valid, or the result of claims being put forward that were outside the terms of the policy.

One respondent, Dennis Hart, from Cambridge based chartered accountants CKL partnership, said: "We have had one claim refused. This was because a client had omitted a bank account from his tax return which we were told invalidated the policy." David Waugh, from Northern Ireland practice Hamilton Morris Waugh, said his firm had also had one claim refused because a client's return hadn't been submitted before 31 January.

Change in provider
Practitioners have certainly showed their independence regarding this type of policy, as just over 40% have changed providers. Only 20% consider that added services provided by the insurance provider influence their decision about recommended cover.

As over 50% of accountants have retained their original insurance provider, this must represent customer satisfaction both as regards premium and policy administration. Those who are unhappy about their insurance product have voiced their complaints on the Any Answers section of AccountingWEB from time to time.

Premiums
68% consider that current PEI premiums are reasonable, and just over 50% either receive commission on premiums or make an extra charge to clients for PEI.

Administration
Just over 60% regard the administration required in connection with PEI to be reasonable, and about the same number consider that policy conditions and exclusions are satisfactory. Just less than 60% are aware of the identity of the ultimate insurer of clients' schemes.

Tax relief
Nearly 40% have claimed tax relief on premiums paid by clients, although the current HMRC view is that these are not an allowable expense. This is, however, a controversial point, and some tax practitioners and insurance providers do not accept the HMRC view. This matter may have to be tested before the Commissioners and courts eventually in order to obtain a binding ruling. Over 70% of those surveyed are aware of the VAT implications of recharging premiums to clients.

Satisfaction
71% are satisfied with their current insurer, but only just over 50% would recommend any one insurance provider to other firms. However nearly 90% would recommend this type of policy generally.

Conclusion
A number of points arise from the results of the survey. Practitioners generally would recommend this type of insurance, and this is the sort of response that was expected, and demonstrates that PEI is fast becoming an essential business service. Satisfaction with any particular insurer is less marked, and over 40% have changed their insurance provider. Nearly 50% would not recommend any particular insurer.

PEI providers still need to convince the accountancy market about their product, both in terms of claims procedure and acceptance, administration required and policy conditions and exclusions. However, the survey shows that practitioners are generally aware of the PEI product and have brought it to the attention of their clients. If disputed issues can be resolved, the PEI product should become one that is an essential part of every practice, large or small.

Although I am no longer in practice, I hold a PEI policy personally, as I consider that this is a normal business risk because of random HMRC audits. Should one come my way I would want to distance myself from the HMRC officer by engaging a tax investigations professional to act on my behalf. There is no part of tax law and administration that can stir up the emotions as an attack on one's honesty and professionalism as a personal tax investigation, and it is therefore essential that one does not become personally emotionally involved in the process.

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