It is extremely difficult to predict what will happen in the future, which is why we try to protect ourselves from every eventuality where possible. We have car insurance to protect ourselves from the cost of buying a new car in the event of a crash, we have house insurance to protect ourselves from the cost of building a new house in the event of a collapse, so why don’t more of us protect ourselves from the professional costs associated with an HMRC investigation? We are going to explain exactly what HMRC investigation fee protection insurance is, and why all business owners need it.
What is an HMRC investigation?
Although regularly referred to as an investigation, inspection or enquiry, the technical name given by HMRC is a “compliance check”. Quite simply the reason for these checks is to ensure that the taxpayer is complying with the UK tax laws and regulations, and hence has paid the right amount of tax.
What triggers a compliance check?
In the majority of cases, something will have triggered the need for a compliance check. Usually, this is something as simple as figures on a return appearing to be wrong, or not in line with your usual trading pattern or industry norms. There are however an increasing number of random compliance checks being carried out by HMRC, so you are never completely safe from being involved in a compliance check.
How does a compliance check work?
Compliance checks usually work in the following way:
- HMRC will send you a letter requesting to see some information to back-up the return you have submitted.
- You or your accountant will compile the information requested and send this back to HMRC.
- HMRC will review your information and will either request additional evidence (such as copies of receipts or bank statements) or conclude the check based on the information already submitted to them.
- If they request additional information you or your accountant will need to compile the additional information and send to HMRC.
- This process will then go back and forth until HMRC determine that the taxpayer is compliant, and hence will conclude the check.
Throughout this whole process, HMRC may ask a variety of questions regarding your circumstances, your business, and your trading activities. All these questions will need answering sufficiently until HMRC are satisfied that you are compliant.
How long does a compliance check last?
HMRC aims to bring all compliance checks to a close as efficiently as possible, however, time delays can occur depending on how co-operative you or your accountant are with HMRC, and how in depth the check needs to go (this is usually dependent upon how complicated your tax affairs are).
How much does a compliance check cost?
The true cost of a compliance check goes back to the age-old question of “what value do you put on your time?”. Even a very simple compliance check can take a large number of hours to bring to a conclusion, so if the cost of the insurance is cheaper than say 4-5 hours of your hourly rate to a customer, then it is well worth the cost of being covered. All accountants will charge you (usually by the hour) to deal with the compliance check for you, so you will also need to assess how much their hourly rate for this type of work will cost you.
What does the insurance cover?
The insurance covers all the professional costs charged by your accountant in conducting the compliance work as requested by HMRC in their communications to bring the check to a close. This means that it doesn’t matter if your investigation takes 5 hours to complete, or 50 hours, you won’t pay any more than your insurance premium, and your accountant’s fees will be paid for by the insurance company.
How much does the insurance cost?
The cost of the insurance will vary from company to company, so we would suggest asking your accountant what their costs are. For our clients, the costs are as follows:
|Limited companies||£160 per annum|
|Sole traders||£120 per annum|
|Private returns||£90 per annum|
The limited company premium covers any compliance check on limited company activities, as well as any check on directors’ personal tax affairs.
The costs of the insurance are fully tax deductible against your business activities.
How do I buy the insurance?
If you are a client of ours and would like to purchase this insurance then please work through the following steps (the whole process should take less than 10 minutes)
- Click on this link to buy HMRC Compliance Check Fee Protection
- Halfway down the page in a green box there is a link that states “click here for a quote and buy now”. Click on that link.
- Complete the requested information.
- Click “Proceed” at the bottom of the screen.
When you have completed these steps, the insurer will notify us of your intention to join the scheme and we will send you an invoice for the premium. When our invoice has been settled then you will be officially added to the scheme, and hence will be covered immediately.
If you are self-employed and run your own business then having this insurance is just as vital to you as the average person having home insurance. The question is not can you afford to have the insurance, the question is can you afford not to?
For more information please e-mail us on [email protected] or call the office on 01634 540340.