Insurance against tax investigations is sometimes referred to as Professional Expenses Insurance. The insurance is to cover costs associated with an investigation into a company’s business affairs by HMRC. Although a business owner may not feel that insurance is necessary, as they keep their business records in order and submit documents and pay tax in a timely manner, HMRC have the powers to launch an investigation into your business affairs at any time. This is disruptive to your business and can lead to HMRC disputing some aspects of your business affairs. A tax specialist is essential when dealing with HMRC, as they know how to deal with an investigation.
HMRC are likely to target a number of businesses to investigate, although any business may be selected. A business with a high turnover may be selected as it has a higher chance of tax errors as affairs are complex. A company which makes a large number of cash transactions may also be targeted. A company which has been established for a number of years may believe they have escaped an investigation, but HMRC may decide that they should pay a visit just to ensure that all tax evasion methods are legitimate.
A number of companies using an accountant may feel that as their tax affairs are dealt with by a professional and are kept in a timely manner, that an investigation wouldn’t be a problem. However, HMRC regulations and legislation are changing constantly which means that HMRC could challenge any aspect of your tax records, especially expenses or reliefs which you are claiming as the rules constantly change. Investigations are conducted for many reasons, including self assessment tax return checks that are routine, technical disputes over legislation and enquiries to matters which are perceived by HMRC to be tax avoidance. The most serious investigation level is the civil investigation of possible tax fraud and criminal prosecution. All incidences of tax investigation are extremely stressful, especially if the business owner doesn’t have the knowledge and experience required to deal with HMRC and the regulations.
A tax investigation carried out by HMRC can occur at any time, with very little warning. The investigation disrupts a business, while posing a number of complex questions for a business owner to answer. In 2011 the Business Record Checks were introduced, causing disruption and anxiety for a number of businesses around the UK. Following Business Record Checks, HMRC can open up further lines of enquiry which can result in more time lost to the business and an extra financial burden. An investigation of any nature can last for years until HMRC enquiries are complete. Any business involved in an investigation will have to devote time to HMRC in order to answer questions and provide documentary evidence to support records. Very often, a business owner won’t have the specialist knowledge required to answer questions about specific aspects of business taxation and may not feel confident enough to deal with investigation inspectors from HMRC. Insurance will cover against the costs incurred when being subjected to an investigation, although insurance won’t usually cover costs incurred as a result of fraud or other criminal activity.
Taking out adequate insurance against a tax investigation allows a business owner to hand over the responsibility of dealing with HMRC to an expert. The fees will be covered by the insurance policy, while the owner can rest assured that all correspondence and meetings are being dealt with appropriately. Tax investigations typically take between six and nine months to complete, resulting in a large bill for professional fees. An insurance policy against an investigation by HMRC will ensure you receive the best representation throughout.
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