A version of this content was first published here in August 2021
Whether you’re a sole trader, contractor or running a limited company, a letter from HMRC through your letterbox can fill you with dread. HMRC enquiries look at several different areas of tax, including Income Tax, Corporation Tax VAT, PAYE compliance and IR35 investigations.
Our tax experts from FSB Legal Protection Scheme explain how tax investigation insurance can save you time and money as a small business owner.
What is tax investigation insurance?
Tax investigation insurance is a type of cover designed to protect businesses and individuals from the financial burden of an HMRC tax enquiry. Even if you’ve done everything correctly, HMRC may still decide to investigate your tax affairs, which can lead to costly professional fees. This insurance ensures that you have expert representation from tax specialists who can handle the enquiry on your behalf, covering the cost of accountants and legal experts to support your case.
What is the significance of tax investigation insurance?
The impact of a tax investigation can be significant, both financially and operationally. Without insurance, businesses may face thousands of pounds in professional fees to defend themselves, even if they’ve done nothing wrong. Tax investigation insurance provides peace of mind, ensuring that expert support is available when needed. It allows business owners to focus on running their company without the stress and distraction of dealing with complex tax enquiries alone.
How can tax investigation insurance help my small business?
If HMRC decides to open an investigation into your business’ finances, there are many reasons why having insurance in place is invaluable, including costs, time and expertise.
1. Save on costs
According to Markel Tax, the average tax enquiry can cost small businesses around £5,000, but each case is unique and costs can vary.
Even if you’re compliant and do everything by the book, defence costs during a tax investigation can spiral into the thousands. From representation costs to accountant fees, it can quickly add up, especially during a lengthy enquiry.
That’s why tax investigation insurance is a key part of FSB membership, so you can protect your business’ bottom line. If work is required of your accountant, their fees will be paid subject to them being agreed and authorised in advance.
2. Expertise on your side
Having an experienced tax specialist you can rely on gives you peace of mind during an enquiry. You’ll have representation from a former tax inspector who is familiar with HMRC, knows what to look out for, and can offer advice and guidance every step of the way.
Our team of experts can represent you in:
- Corporation or Income Tax full and aspect enquiries
- PAYE (Employer Compliance) enquiries and VAT disputes
- IR35 enquiries/disputes
3. Save valuable time
HMRC enquiries can take years to complete and dealing with correspondence takes away precious time that you could be spending on running your business. How long the investigation may take depends on various factors, such as how much information HMRC is looking through, the area of taxation under review and the size of your business.
Full enquiries can last around 18 months on average, whereas aspect enquiries are usually resolved more quickly and on average last around six months. However, it can take much longer in cases where more complex matters are under review and where issues such as disputed valuations arise. A tax consultant will meet with you and the Inspector as necessary, deal with all correspondence arising and liaise with your accountant, when required.
"I have been a member for four years and FSB recently helped me with a tax investigation claim which was successful and saved me a lot of time and money. Just when I thought the investigation was concluded, HMRC said they were going to investigate my private affairs. My first thought was that I wouldn't be covered for that as well. However, I was told that if there is an investigation into the business that then leads on to my private affairs, then that would also be covered. To my relief, FSB supported me through it and I can now continue to run my business without the worry of a further visit from HMRC."
4. Reassurance
You won’t need to stress or worry at the prospect of a tax enquiry – simply pick up the phone straight away and know you’ve got a specialist on your side from day one.
When Josh Harbias, an FSB member for over a decade, received a request for information from HMRC, he found it reassuring that the tax experts at FSB Tax Investigation Protection were in his corner.
“FSB’s tax experts took it off my hands and dealt with all the heavy lifting. It was reassuring to know someone was in my corner. They had the time, knowledge, skills and understanding of HMRC, which was great, especially when business owners like me are not used to the process. The enquiry lasted five years and without FSB’s help it would have cost thousands of pounds to deal with.”
Read more about Josh Harbias’ experience.
Types of tax investigations covered by tax investigation insurance
Tax investigation insurance typically covers a range of HMRC enquiries, including:
- Full enquiries – When HMRC reviews all of your financial records in detail.
- Aspect enquiries – Focused investigations into specific areas of your tax return.
- PAYE and VAT disputes – Ensuring compliance with payroll and VAT regulations.
- IR35 investigations – Reviewing contractor status and off-payroll working rules.
Having cover in place means you won’t have to navigate these investigations alone, with specialist support available at every stage of the process.
Making a claim on your tax investigation insurance
If you receive a letter from HMRC notifying you of a tax enquiry, it’s important to act quickly. The first step is to notify your tax investigation insurance provider as soon as possible. They will assess your situation and guide you through the claims process. Once your claim is approved, you’ll be assigned a specialist who will handle all correspondence with HMRC, gather the necessary documentation, and liaise with your accountant. This expert support ensures that your case is managed efficiently, helping to minimise disruption to your business while covering the professional fees associated with the investigation.
What extra protection is available for FSB members?
With essential tax advice, protection against the cost of professional fees and representation from ex-HMRC inspectors in the event of a tax enquiry, you can protect your business for less. There are no extra fees or policies to take out – tax investigation insurance is part of your membership.