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Without passing-out through boredom, if any of you run a small business, what are your thoughts/experience of taking out insurance against being investigated by HMRC?
Our accountant is (obviously) keen for us to buy some insurance through him. But I'm wondering if it's really worth it. Our accounts are so simple, I can't imagine that *IF* we are unlucky enough to be investigated at random, the bill for what he will have to do will run into the many-thousands-of-pounds that his generic brochure predicts.
Thoughts? Experience?
HMRC investigations can be lengthy and your accountant will be responding on your behalf and that is what the insurance protects you against. I assume it is been offered through QDOS or similar, which your accountant will receive commission on.
What they don't tell you is that by doing the Federation of Small Businesses you get the same cover along with a lot more benefits for less money too.
https://www.fsb.org.uk/benefits/advice/tax-investigation-protection
Their commission will be roughly a third of what you are paying.
As for the odds of needing it, at my last place of work we had 1,100 clients. In 18 months we had 6 inspections, including some quite narrow in scope, eg. just PAYE or just VAT. So about 0.36% chance of getting picked in any given year if that is typical.
I used to run a small print & design company, we got 'investigated' by the taxman. Their opening shot was 'you owe us £11,000 which was nonsense, our clients were all business/corporate, we had no cash clients, as we told them
A couple of days later they came back with a revised figure of £1100, which was also nonsense not to mention just an obvious blag,their response was 'prove it'. 5 years of accounts to check through.
Our accountants were sympathetic and adamant that we didn't owe the cash, but advised us to just pay as it was going to cost us several times what the tax people were trying to extort out of us, just to prove we didn't owe it.
So in the end we paid, then we bought the insurance... funnily enough we got 'investigated' again the following year, our accountants rubbed their hands and set to work - we never got investigated again
Interesting, I have been fastidiously doing my own accounts for 10 years now and can account for every penny with receipts. I suspect i am not on the hit list for investigations as have no cash, the tax forums talk about taxis, catering etc are investigated routinely.
Do you just get a letter from HMRC asking questions? It must be registered i suppose, to prove receipt.
As above. FSB.
Do you just get a letter from HMRC asking questions?
Yes. We just got an enquiry about VAT repayments over a 6 year period. We had all the receipts. They just decided we had claimed too much, so wanted the evidence.
They did an inquiry, got things wrong and they paid us some money back.
instinct puts it in the same box as PPI, but I do have a nagging doubt.
Suspect it's likely to boil down to how good your records are (or if the insurance costs are less than putting them in order...).
FSB. Always talk to them (Or their partner Law Firm) first, if you do need anything. Once you take advice from anyone else they will not get involved. For obvious reasons.
We had a random VAT inspection. Very interesting, it took two mornings and was not any hassle at all to be honest.
They plugged their USB into our accounts PC the clever software threw up a list of invoices and receipts that they wanted to see.
No big issue. They were more interested in what we did, who our customers were and what we were buying. For example it they queried a MacBook, where is it, what do I use it for etc. Our accountant didn't get involved.
Save the premium and self insure, best case scenario, you won't get an inspection, worst case, you have war chest to get assistance when you need it. And find a new accountant who is more interested in doing his bit rather than selling insurance?
I was investigated around 10 years ago.
They questioned my profit. It was low, as I was paying my wife to answer my phone. (there had been something in the news at the time of a BBC exec paying his wife a fortune to do nothing). They said she was not my secretary, and she should answer the phone anyway as it was also the house phone.
They said I owed them something like £5k, as the wages to her were not legitimate. I argued they were, there was then a compromise, where I paid around £1k extra. A right PITA, as I was well peeved that well paid public employees can get away with it, yet I couldnt.
My window cleaner got called in. They wanted around £5k off him. He was totally legit. As he isnt the brightest spark, he had an accountant. That, and he was the lowest paid window cleaner in leicester made them investigate him. He was really peed off with them, and was persuaded by his accountant to offer around £1k, which they accepted.
Both were one man businesses, so not a great deal of paperwork involved, so no great cost involved in dealing with it.
And find a new accountant who is more interested in doing his bit rather than selling insurance?
I must admit, that was my first thought. He is basically saying you should get some insurance to cover yourself in case he hasn't done his job properly. Might be good advice but it doesn't offer a lot of confidence
Ok thanks thats really helpful