Tax Enquiry and Investigation Service.
Discussion
Eric Mc said:
I've worked for firms that offered this. I think it is marginally a con - depending on how it works.
Ask him if you are covered even if you don't pay him the extra fee he is asking.
If you are, then it is a total con.
It says the regular fees don’t cover it.Ask him if you are covered even if you don't pay him the extra fee he is asking.
If you are, then it is a total con.
It’s the wording that pisses me off listing all the consequences if they decided to investigate, they claim it can be done at random with a computer generated ‘risk profiling’
Im sure my small limited company that hovers under the vat threshold wouldn’t get them much!
Is he being honest?
The normal system is that the firm takes out a policy with an insurance company to cover time costs incurred in dealing with tax inquiries and/or investigations.
With most policies of this type, ALL of the clients are covered because it is not the clients that will make the claim, it is the firm - irrespective of which client the investigation relates to.
If a client gets selected by HMRC for an inquiry/investigation, the firm notifies the insurance company of this. All time spent by the firm in dealing with the inquiry is logged and a fee total is arrived at, usually when the investigation is finished. However, if the insurance company has agreed to pay out on this investigation (they don't always), the fee note for the work is passed to the insurance company for settlement rather than the client.
The thing is, depending on the nature of the policy, it might be that client is covered by the firm's insurance whether they chose to pay any additional fees to the accountant.
You can see where this could lead to fraud?
Say a client didn't pay the extra fee and then undergoes a tax investigation. The accountant racks up £2,000 of fees. He bills the client and tells him he has to pay up as he hadn't paid the extra fee to cover the insurance against inquiries. However, the accountant ALSO sends a copy of the bill to the insurance company - which also pays up.
The accountant could conceivably get paid twice for the same work.
As for "random" tax investigations, these have been allowed under tax law since the introduction of self assessment 25 years ago. I can tell you I have NEVER encountered a tax investigation that was enacted by the exercising of this "random" provision.
The normal system is that the firm takes out a policy with an insurance company to cover time costs incurred in dealing with tax inquiries and/or investigations.
With most policies of this type, ALL of the clients are covered because it is not the clients that will make the claim, it is the firm - irrespective of which client the investigation relates to.
If a client gets selected by HMRC for an inquiry/investigation, the firm notifies the insurance company of this. All time spent by the firm in dealing with the inquiry is logged and a fee total is arrived at, usually when the investigation is finished. However, if the insurance company has agreed to pay out on this investigation (they don't always), the fee note for the work is passed to the insurance company for settlement rather than the client.
The thing is, depending on the nature of the policy, it might be that client is covered by the firm's insurance whether they chose to pay any additional fees to the accountant.
You can see where this could lead to fraud?
Say a client didn't pay the extra fee and then undergoes a tax investigation. The accountant racks up £2,000 of fees. He bills the client and tells him he has to pay up as he hadn't paid the extra fee to cover the insurance against inquiries. However, the accountant ALSO sends a copy of the bill to the insurance company - which also pays up.
The accountant could conceivably get paid twice for the same work.
As for "random" tax investigations, these have been allowed under tax law since the introduction of self assessment 25 years ago. I can tell you I have NEVER encountered a tax investigation that was enacted by the exercising of this "random" provision.
Patch1875 said:
Every year my accountant invites me to pay for an insurance policy protecting me from associated costs from the above.
I usually after giving it a minutes thought file it in the recycling.
Is it a scaremongering con?
I paid for this a couple of times as it was less than £100. I then discovered I had that cover anyway under one of our other policies.I usually after giving it a minutes thought file it in the recycling.
Is it a scaremongering con?
That's the risk of buying one random policy from your accountant rather than your insurance broker.
I once worked for a firm that operated a scheme like this and I left not long after they started it - for that and other reasons. It upset clients for a start - many didn't avail of the "offer" and felt a bit put upon when they were contacted out of the blue by the firm asking them if they wanted to "join the scheme" (a scheme which they were already in by default anyway).
If you want genuine protection from tax investigations, perhaps you could look to take out a policy specific to your own business.
Is your business high risk? Is it engaged in an activity that has a history of problems and which HMRC might look on as one where income might be stated incorrectly?
If not, then I don't think it's worth worrying.
If you want genuine protection from tax investigations, perhaps you could look to take out a policy specific to your own business.
Is your business high risk? Is it engaged in an activity that has a history of problems and which HMRC might look on as one where income might be stated incorrectly?
If not, then I don't think it's worth worrying.
Eric Mc said:
Is he being honest?
The normal system is that the firm takes out a policy with an insurance company to cover time costs incurred in dealing with tax inquiries and/or investigations.
With most policies of this type, ALL of the clients are covered because it is not the clients that will make the claim, it is the firm - irrespective of which client the investigation relates to.
If a client gets selected by HMRC for an inquiry/investigation, the firm notifies the insurance company of this. All time spent by the firm in dealing with the inquiry is logged and a fee total is arrived at, usually when the investigation is finished. However, if the insurance company has agreed to pay out on this investigation (they don't always), the fee note for the work is passed to the insurance company for settlement rather than the client.
The thing is, depending on the nature of the policy, it might be that client is covered by the firm's insurance whether they chose to pay any additional fees to the accountant.
You can see where this could lead to fraud?
Say a client didn't pay the extra fee and then undergoes a tax investigation. The accountant racks up £2,000 of fees. He bills the client and tells him he has to pay up as he hadn't paid the extra fee to cover the insurance against inquiries. However, the accountant ALSO sends a copy of the bill to the insurance company - which also pays up.
The accountant could conceivably get paid twice for the same work.
As for "random" tax investigations, these have been allowed under tax law since the introduction of self assessment 25 years ago. I can tell you I have NEVER encountered a tax investigation that was enacted by the exercising of this "random" provision.
I think that's not really painting a fair picture of fee protection to be honest. I don't know the split between firm-wide and individual client policies, but it's certainly not most as you state.The normal system is that the firm takes out a policy with an insurance company to cover time costs incurred in dealing with tax inquiries and/or investigations.
With most policies of this type, ALL of the clients are covered because it is not the clients that will make the claim, it is the firm - irrespective of which client the investigation relates to.
If a client gets selected by HMRC for an inquiry/investigation, the firm notifies the insurance company of this. All time spent by the firm in dealing with the inquiry is logged and a fee total is arrived at, usually when the investigation is finished. However, if the insurance company has agreed to pay out on this investigation (they don't always), the fee note for the work is passed to the insurance company for settlement rather than the client.
The thing is, depending on the nature of the policy, it might be that client is covered by the firm's insurance whether they chose to pay any additional fees to the accountant.
You can see where this could lead to fraud?
Say a client didn't pay the extra fee and then undergoes a tax investigation. The accountant racks up £2,000 of fees. He bills the client and tells him he has to pay up as he hadn't paid the extra fee to cover the insurance against inquiries. However, the accountant ALSO sends a copy of the bill to the insurance company - which also pays up.
The accountant could conceivably get paid twice for the same work.
As for "random" tax investigations, these have been allowed under tax law since the introduction of self assessment 25 years ago. I can tell you I have NEVER encountered a tax investigation that was enacted by the exercising of this "random" provision.
The ICAEW require firms to offer this service to their clients. We do, and as we are a professional practice, state the pros and cons of the insurance.
My experience of such schemes dates to over 20 years ago. I would hope and expect that the accountancy bodies clamped down on any unethical practices associated with such schemes long ago.
Having said that, if I was offered the choice of joining such a scheme, I would make sure I fully understood how the scheme worked for me, what was covered and, most importantly, what was not.
I would also inquire of the firm the ACTUAL risk for me or my business or my personal affairs of being selected by HMRC for a tax inquiry.
In my experience, over the past 20 years, the number of full blown tax inquiries and investigations into smaller businesses has dropped to almost none since Self Assessment was introduced 25 years ago.
Having said that, if I was offered the choice of joining such a scheme, I would make sure I fully understood how the scheme worked for me, what was covered and, most importantly, what was not.
I would also inquire of the firm the ACTUAL risk for me or my business or my personal affairs of being selected by HMRC for a tax inquiry.
In my experience, over the past 20 years, the number of full blown tax inquiries and investigations into smaller businesses has dropped to almost none since Self Assessment was introduced 25 years ago.
MaxFromage said:
Agreed.
For some, the fee is so small that they are happy paying it. Just like any optional insurance, it's often down to risk profile. Cash businesses and those in construction are still a significant target IMO, along with some professionals.
Would I be correct in thinking that a lot of policies only cover full enquiries, whereas most enquiries are aspect?For some, the fee is so small that they are happy paying it. Just like any optional insurance, it's often down to risk profile. Cash businesses and those in construction are still a significant target IMO, along with some professionals.
HMRC muddied the water with Self Assessment.
Under the pre SA regime, tax investigations usually happened after initial light touch type questions by a Tax Inspector were not answered to his/her satisfaction - at which point a full Tax Investigation or Tax Inquiry would be instigated. A formal letter launching the inquiry would by issued by the Tax Inspector. That was a clear signal to any insurance company that a formal inquiry was under way and most insurance companies asked to see that letter before they confirmed whether the resulting accounting fees would be covered by the terms of the policy or not.
Since the advent of SA, the system whereby tax inspectors raise routine queries on accounts or tax returns virtually ceased. The only type of "queries" became "inquiries". HMRC had to then differentiate whether the "inquiry" was a full blown one or trying to answer a simple point, like the omission of interest received from a box in a tax return.
Not every type of tax inquiry will be covered by these policies.
Under the pre SA regime, tax investigations usually happened after initial light touch type questions by a Tax Inspector were not answered to his/her satisfaction - at which point a full Tax Investigation or Tax Inquiry would be instigated. A formal letter launching the inquiry would by issued by the Tax Inspector. That was a clear signal to any insurance company that a formal inquiry was under way and most insurance companies asked to see that letter before they confirmed whether the resulting accounting fees would be covered by the terms of the policy or not.
Since the advent of SA, the system whereby tax inspectors raise routine queries on accounts or tax returns virtually ceased. The only type of "queries" became "inquiries". HMRC had to then differentiate whether the "inquiry" was a full blown one or trying to answer a simple point, like the omission of interest received from a box in a tax return.
Not every type of tax inquiry will be covered by these policies.
My family business unwittingly employed a pyromaniac in the early 1950's; the three fire's caused huge damage, a huge insurance claim followed by a Revenue investigation, with declining trade and punitive penalties, most people would have walked away.
The business declined to being a very slow paying shadow of its former self, and not until a major change of direction did things pick up.
I estimate the cycle as having taken around 50 years to be fully exorcised.
I can learn from the past, I willingly pay (my broker not accountant) for policies that cover the extra fees that might occur for an investigation and also for a policy that covers loss adjusters charges.
The business declined to being a very slow paying shadow of its former self, and not until a major change of direction did things pick up.
I estimate the cycle as having taken around 50 years to be fully exorcised.
I can learn from the past, I willingly pay (my broker not accountant) for policies that cover the extra fees that might occur for an investigation and also for a policy that covers loss adjusters charges.
Patch1875 said:
Every year my accountant invites me to pay for an insurance policy protecting me from associated costs from the above.
I usually after giving it a minutes thought file it in the recycling.
Is it a scaremongering con?
My last accountant sent me one of these. To my surprise he even followed it up.I usually after giving it a minutes thought file it in the recycling.
Is it a scaremongering con?
After I'd paid him in full in advance to do CGT calcs but got only two pages of handwritten scribble and a request for 3x as much money, I sacked him.
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