Are You Covered for Tax Investigations?
Tax investigations can be daunting, unexpected, and expensive. Whether you’re a self-employed individual, a small business owner, or managing a limited company, the possibility of being selected for a tax investigation by HMRC is very real and it can happen even if you’ve done nothing wrong.
What Is a Tax Investigation?
A tax investigation, sometimes called a tax enquiry, is when HMRC decides to take a closer look at your tax affairs.
This could involve:
• Full investigations – HMRC reviews your entire tax return.
• Aspect investigations – Focused on one or more elements of your return.
• Random checks – You can be selected even if your return looks fine.
Investigations can relate to income tax, corporation tax, VAT, PAYE, or even IR35 compliance. They can last weeks or, in complex cases, over a year.
Why Might You Be Investigated?
HMRC uses increasingly sophisticated data-matching tools and risk assessment systems to identify discrepancies.
Common triggers include:
• Large or unusual expense claims
• Consistent losses year after year
• Information mismatch between returns and third-party data
• Random selection
Even if you’ve done nothing wrong, an investigation can be triggered simply by statistical anomalies.
The Financial and Emotional Toll
Dealing with HMRC isn’t just time-consuming, it can be costly. Professional fees for accountants or tax advisers to represent you can run into thousands of pounds. In addition, the stress of dealing with HMRC queries and potential adjustments to your tax bill can take a toll on your wellbeing and your business.
What Is Tax Investigation Insurance?
Tax investigation insurance (also known as Fee Protection Insurance) covers the professional costs of defending you in a HMRC enquiry.
This includes:
• Accountant’s fees
• Tax adviser representation
• Legal advice if needed
• Support with correspondence and meetings with HMRC
With this insurance, you won’t have to worry about the unexpected financial hit of professional fees, even if the investigation finds no wrongdoing.
Who Should Consider It?
• Self-employed individuals – You are solely responsible for your taxes.
• SMEs and limited companies – Especially those with complex structures or high volumes of transactions.
• Landlords and property investors – Due to increased scrutiny in recent years.
• Contractors and freelancers – Particularly those affected by IR35 legislation.
If you rely heavily on your accountant during tax time or operate in a high-risk industry, it’s worth reviewing your protection options.
Is It Worth the Cost?
The cost of tax investigation insurance is relatively low, compared to the potentially thousands you could spend during an enquiry. It gives peace of mind and ensures you can access expert representation without worrying about hourly fees.
Final Thoughts
No one wants to face a tax investigation, but having coverage in place ensures that you won’t face it alone or unprepared. Ask your accountant whether you’re currently covered or explore standalone policies if needed. It’s a small price to pay for peace of mind and financial protection.
