What is a fee protection service? And do I need it?
A fee protection service can save you from the unexpected costs of having your business accounts investigated by HMRC. HMRC investigations can run into thousands of pounds in costs – hundreds of thousands in some cases. Having fee protection in place gives you the reassurance that your accountant’s costs in dealing with the investigation will be covered.
In this fee protection service guide, we drill down to the details of what the fee protection service covers and why it shouldn’t be undervalued.
Imagine the scenario; your accountant has filed your end of year tax return. Everything looks as you’d expect and you’ve paid up all you owe. Then, out of nowhere, you’re contacted to say you’re being investigated by HMRC. Suddenly, you need your accountants time again, but you’ve already settled their bill and there’s no budget left to pay for their services. What do you do?
It’s a situation faced by thousands of UK businesses each year, one which has stepped up following COVID-19 as HMRC seeks to crack down on fraudulent claims for financial support. This has led to a growing number of UK businesses being randomly selected for investigation, with even sole traders finding their accounts subject to scrutiny.
But that’s not going to impact me is it?
After all, you file your taxes via an accountant and do everything by the book.
Wrong.
HMRC can – and will – investigate any business, of any size, at any time. So, even if you’ve always filed on time, declared every expenditure, and never missed a payment, your business can still be targeted for investigation, just to ensure that everything truly is as good as it seems on paper.
So, what do you do when you’re facing an unexpected accountancy bill you hadn’t budgeted for?
Well, if you have a fee protection service in place or are subscribed to a tax investigation service with your accountancy firm, you simply relax and carry on as normal, safe in the knowledge that whatever your accountants bill amounts to, the total will be paid off by an insurer.
What is a fee protection service?
As you may already have gathered, a fee protection service protects you in the event that your business is singled out for a tax investigation by HMRC and you have to pay your accountant for the additional hours they accrue handling the investigation on your behalf.
How does a fee protection service work?
Let’s say your business is being investigated by HMRC. Your accountant will need to supply whatever documentation HMRC requests in order to assess whether you owe any additional tax to that which you’ve declared. Most likely, these will include your end of year tax accounts or self assessment records, along with all PAYE records and returns for your employees.
As your nominated tax agent, it is your accountant who will need to supply this information and liaise with HMRC on your behalf. He or she will also need to be present for any in-person visits HMRC may make to your business premises whilst the investigation is ongoing.
Once the investigation concludes, your accountant will (as you would expect) present you with a bill for their services. This could reasonably amount to thousands of pounds given the length of time in which HMRC investigations typically take on average. With a fee protection service or a tax investigation service in place, this bill will be automatically settled by an insurer, meaning you’d only be liable for any tax shortfalls HMRC determines you owe, and not the hours billed to you by your accountant.
What are the benefits of a fee protection service?
By far the biggest benefit of a fee protection service is the cost saving it offers. The policy can settle the cost of tax compliance investigation bills from your accountant for up to six figures.
Another key benefit is the peace of mind a fee protection service delivers.
We can’t stress enough that no business is immune from investigation by HMRC. Even if your annual turnover is comparatively tiny by your competitors’ standards, if HMRC receives an anonymous tip-off, or if they have reason to suspect you’re not being entirely transparent in your returns, they will single you out for investigation.
Depending on the nature of the claim against your business or the reason the investigation was triggered, this may involve analysing up to 20 years’ worth of accounts, which is an extremely lengthy and time-consuming process that can easily see your accountancy fees add up.
Knowing you have the assurance of being able to pay off what you owe your accountant for their services, even if that final bill totals tens of thousands of pounds, can help to make the process a lot less stressful, freeing you up to focus on your day-to-day affairs with confidence.
For more information about our tax investigation service, visit our service page.