Tax investigations insurance, how it works

Tax investigations insurance, sometimes referred to as Professional Expenses Insurance (PEI), is included as a core component of IPSE membership and covers costs associated with an investigation into your business affairs by HMRC. Certain enquiries from HM Revenue & Customs (HMRC), such as a request to examine your records, could have implications that are best handled by a specialist tax consultant, rather than a General Practitioner.

A particularly common implication for freelancers is the risk of being caught under IR35, the legislation that recently resulted in a contractor being ordered to pay £99,000 in additional taxes, despite only billing a daily rate in the £350 to £500 range.

Whilst IR35 insurance is a core element of IPSE cover, support provided covers most common investigations that a freelance business may have to endure. In the event of HMRC commencing any of the enquiries listed below, we will provide you, at no cost, with an expert representative. The Appointed Representative will either be from Abbey Tax or Accountax Consulting who both specialise in enquiry work. The representative will work with you and your accountant, handling communications from HMRC to maximise your chances of a successful outcome. Any additional fees incurred by your accountant at Accountax’s or Abbey Tax’s request are also taken care of.

As Jacqui Mann from Abbey Tax Protection, one of IPSE’s professional advisers, points out:

“When HMRC finds out we’re on a case, they sit up and take note. It definitely helps that we understand the inner mechanics of the system. Revenue officers know we’re all former tax inspectors ourselves and therefore they have to play it by the book.”

IF YOU HAVE ANY QUESTIONS PLEASE SEE FREQUENTLY ASKED QUESTIONS

How we finance it

IPSE is covered by a group Professional Expenses (Tax Investigations) Insurance policy. IPSE is the only policyholder and only IPSE has direct rights under the contract of insurance. These rights are held for the benefit of IPSE members. Except where stated below, the policy pays up to £75,000 worth of Professional Fees in respect of any one claim and in aggregate for any one Member in the Period of Insurance.

In order for IPSE to claim under its policy, you must be a fully paid up Member of IPSE at the time that one of the events listed below occurs. Compliance with the terms and conditions is required if you are to receive a benefit.

Cases are highly unlikely to incur more than £75,000 of professional fees and therefore to fall outside the scope of the cover. However, IPSE has a separate fund available for use in exceptional circumstances, where we believe that the outcome of a case could have an impact on existing case law, and by default, impact on the future of freelancing. That is why we decided to fund the Arctic Systems case, taking it to a landmark victory in the House of Lords after a six year battle.

Events claimable by all members

Some or all of these will apply, depending on your chosen business structure; sole-trader, limited company, partnership or limited liability partnership.

i) Income Tax Self Assessment (ITSA) Full Enquiries

The trigger point is the issue of the S9A or S12AC TMA 1970 Notice by the Inspector of Taxes together with a request to examine all of the business books and records or, in the case of a personal taxpayer, all of the underlying documents used in the preparation of the Self Assessment Return.

ii) Income Tax Self Assessment (ITSA) Aspect Enquiries

The trigger point is the issue of the S9A or S12AC TMA 1970 Notice by the Inspector of Taxes. The Inspector will be making enquiries into specific Aspects of the Income Tax Self Assessment Return. ITSA Aspects carry an excess of £150 and a Maximum Limit of Indemnity of £3,000 i.e. up to £2,850 will be paid. An Aspect that becomes a Full Enquiry will then benefit from the £75,000 Policy Limit. If you are a sole trader you are covered providing the enquiries relate to expenditure you have made in connection with your business.

iii) Corporation Tax Self Assessment (CTSA) Full Enquiries (excluding IPSE Solo members)

The trigger point is the issue of the Notice under Paragraph 24(1) Schedule 18 Finance Act 1998 together with a request to examine all of the business books and records.

iv) Corporation Tax Self Assessment (CTSA) Aspect Enquiries (excluding IPSE Solo members)

The trigger point is the issue of the Notice under Paragraph 24(1) Schedule 18 Finance Act 1998. The Inspector will be making enquiries into specific Aspects of the Corporation Tax Return. CTSA Aspects carry an excess of £150 and a Maximum Limit of Indemnity of £3,000 i.e. up to £2,850 will be paid. An Aspect that becomes a Full Enquiry will then benefit from the £75,000 Policy Limit.

v) Employer Compliance Disputes

The cover is in respect of PAYE, P11D and NIC disputes and the trigger point is the issue of a letter, assessment or notice by HMRC, following an Audit visit, providing there is a prospect of disputing the alleged liabilities.

vi) HM Revenue & Customs VAT Disputes

The trigger point is the issue of a written decision, assessment, or statement of alleged arrears by HM Revenue & Customs into Value Added Tax and/or Value Added Tax default surcharges and misdeclaration penalties, providing there is a prospect of disputing the alleged VAT liabilities.

vii) IR35 Disputes

Cover is also available where HMRC are disputing the IR35 declaration following either the issue of a Notice under Paragraph 24(1) Schedule 18 Finance Act 1998 or an HMRC Compliance visit. However, there must be a written Contract for Services in respect of the liabilities which are being disputed the real arrangements do not significantly conflict with the contractual arrangements on status-relevant matters. The Contract must also have been strictly followed and there must be a reasonable prospect of successfully contesting the Revenue's allegations.

viii) S660A Enquiries

The trigger point will be either the issue of a Notice under Paragraph 24(1) Schedule 18 Finance Act 1998 Aspect Enquiry specifically dealing with matters pertaining to settlements legislation or an HM Revenue & Customs Compliance visit which concerns itself with the settlements legislation, however any S660 Enquiry will be covered regardless of the source.

Events claimable only by IPSE Plus members - Real Time Records Reviews/Inspection Visits

Previously HMRC would try to contact a member to undertake a PAYE audit, but under the provisions of FA2008 Schedule 36, HMRC have extended powers to contact a member in order to:

  • review of business records; and/or
  • review VAT documentation; and/or
  • review Employer Compliance (PAYE & NIC) records.

Whereas previously a request to visit could be refused, the new legislation denies the taxpayer the right to refuse. However, common sense is likely to prevail because it is unlikely that HMRC will not necessarily want to visit a member’s home and so it is likely that records will be reviewed elsewhere – for example at the offices of Abbey Tax or Accountax.

From the point of the IPSE’s PEI Policy which has extended benefits for Plus members, if HMRC wish to undertake one of these reviews or look at PAYE, VAT and Tax records, then Plus members will have representation for one of these visits. This means that Plus members in fact have additional benefits because a VAT Control Visit and a Visit to review the current tax records are also included which was not the case before.

These visits are routine checks from HMRC to ensure that your company is keeping appropriate records and accounting correctly for PAYE/VAT/TAX. They are not investigations, although if non-compliance is found in respect of PAYE or tax, then a dispute could arise; if HMRC are not satisfied with your tax records, they may wish to open an enquiry into the latest Tax Return available to them. If one of these events occurs, the IPSE’s PEI policy will cover these. Please be aware, HMRC runs these checks regularly, but does not publish details of how it chooses whom to audit. It is also known that HMRC uses PAYE visits to uncover potential non-compliance regarding IR35.

We expect that the main focus for freelancers will still be PAYE/IR35, but HMRC may want to look at other areas - so be prepared! Having these additional benefits available for Plus members is extremely relevant to any business that runs a payroll (including partnerships and even sole traders that have employees). The scheme guarantees expert advice and support throughout the whole process of an IR35 investigation and uniquely includes expert professional support during the PAYE compliance visit itself.

When the focus is PAYE you will receive support in preparing all the responses and letters required by HMRC, saving you considerable time and effort and offering excellent chance of an early conclusion. It covers advice, support and representation costs up to and including a hearing at a Tribunal and also provides support for the Contract Review process that HMRC may instigate to look at the IR35 status of a company.

Non claimable events

  • Existing investigations and disputes at the time the insurance is taken out as well as events of which you are aware e.g. notification of a HMRC visit.
  • An Enquiry or Dispute occurring or notified to insurers after the Individual has ceased to be a Member of IPSE.The Professional Expenses Insurance has no grace period. Once your IPSE membership renewal date has passed, cover under the Professional Expenses Insurance will cease. If you then renew your membership you will not be covered for any investigations which commenced during the interim period. For this reason it is essential that you renew your IPSE membership promptly when you receive the reminder.
  • Fees incurred prior to the written acceptance of a claim.
  • Claims arising where the annual Returns/accounts are submitted "late"; i.e. outside the time parameters set out in Taxes Management Act 1970.
  • Attendance at routine VAT and Employer Compliance visits (except for IPSE Plus members - see above).
  • Tax planning arrangements where HMRC has allocated a Disclosure of Tax Avoidance Scheme (DOTAS) Number and any matter relating to bespoke tax planning outside of the normal trade such as film partnerships or film schemes, or planning involving artificially created losses or loan arrangements.
  • Enquiries being handled by HMRC Counter Avoidance, Fraud Investigation Service (FIS), Special Civil Investigations, HMRC Customs & Excise Investigations Division cases and criminal investigations.
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