If your accountant offers you fee protection insurance – do you take it out? Like most insurances, people generally look at fee protection insurance in one of two ways. To some it will represent invaluable peace of mind knowing that they have some extra financial protection regardless of what HMRC throws at them. To others it represents an additional expense that can be overlooked when times are difficult and there are other more pressing financial commitments. The latter often reassure themselves that they are unlikely to be selected for an enquiry and will be alright if they do because they do things above board and haven’t got anything to hide. However, with the numbers of HMRC enquiries increasing year on year is fee protection insurance something that you can really afford to be without?
The emergence of fee protection insurance has significantly changed the negotiating positions of those taxpayers who take it out with regards to HMRC. Before the arrival of this insurance the considerable extra costs of representing clients in an enquiry was undoubtedly a weapon that HMRC used as part of its armoury of tactics. If it dragged out an enquiry long enough, then any client would start to weigh up the comparative cost of accepting a settlement with HMRC against the accountancy costs associated with fighting on. Any accountant that cared for its clients, as indeed DEB does, would, at some point, have to mention the possibility of haggling a deal with HMRC to minimise costs when it was clear that the enquiry was going to drag on for a substantial length of time.
Fee protection insurance has changed this situation. When cover is taken out the taxpayer no longer has to negotiate a settlement figure to try and minimise costs. The situation is effectively reversed, as accountants can fight on in the knowledge that they will get paid by the insurance company no matter how long an enquiry takes. It is now HMRC that is faced with the need to close enquiries quickly due to a lack of resources. If it is getting nowhere on an enquiry then it makes sense to close it down and move on to an easier target that will produce a better return for its time. So, if you are offered fee protection cover by your accountant there is a strong tactical argument for accepting it.
A cautionary note: Some organisations offer what sounds like similar cover for their members but the cover does not always offer the level of protection you need. Often this cover is an arrangement between the insurer and the member organisation and the insurance provider generally stipulates that the negotiations with HMRC are conducted by an accountant of their choosing. The reason for this is that the main priority of the insurer is to minimise the cost of the claim by settling the enquiry as quickly as possible. This may result in an agreement that is not necessarily at the lowest cost to the taxpayer. If you have cover provided as a membership benefit we would advise that you check the details to ensure that you have the appropriate cover in place.
If you wish to discuss fee protection cover further please do not hesitate to contact us at DEB Chartered Accountants.