Mandatory PII could see costs spiral for small firmsby
HMRC’s efforts to improve tax advice will mean all advisers will be required to hold professional indemnity insurance (PII), but this means practices may have to carry the cost of premiums going up.
One of the papers released on Tax Day in March that created the biggest stir was a consultation into compulsory professional indemnity insurance (PII) for all tax advisers. The move follows HMRC’s long standing campaign to ‘raise standards in the tax advice market’.
While they were supportive of PII cover, they raised concerns about the costs this will inflict on practices and whether this is really the right approach in clamping down on a small minority of unscrupulous advisers.
Margaritelli feared the measure was like HMRC “taking a shotgun to shoot an individual person”.
How will this affect accountants?
Benneyworth explained that the mandatory PII measure has its roots in the sale of loan schemes; whether that’s people running the schemes or firms and advisers referring clients and taking a kickback. But the desire to regulate this bad behaviour may see indemnity insurance soar for practitioners.
“If you’re an accountant or specialising in tax, or anyone giving advice, you’re going to want PII,” said Margaretelli. “Mistakes happen. No one can say they will never make a mistake. There isn’t an institute or organisation that doesn’t have a mandatory PII.
“However, making it mandatory and then policing it is fraught with all manners of danger, '' continued Margaritelli. “The biggest thing I can see is that costs will escalate.”
The cost of PII is based on every individual’s quality of work and claims history. “However, if these small numbers of insurers in this marketplace are told that they have to insure everybody… my premium will not be down to me or the work I do. The prices will ratchet up.”
Margaritelli could see larger practices passing on the cost, but he’s concerned that mandatory PII will impact smaller practices the most.
How effective will it actually be?
And then the question is whether the measure will even be successful in stopping those promoting loan schemes. Again, Margaritelli is not convinced.
“The fact of the matter is that as taxation continues to increase… there will always be someone or people that will work out some form of scheme to get that tax down,” he said.
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