How to Compare Tax Investigation Insurance (UK Buyer's Checklist)

Comparing tax investigation insurance is harder than it ought to be. The one thing every provider shows you is the price, and the price tells you the least about what you're buying. Two policies that look alike on a quote page can pay out very differently once an HMRC letter has landed on the mat.

The short version: compare any two policies on seven things. The total fee limit, the hourly rate it pays, the excess, who represents you, which HMRC disputes are covered, what's excluded, and what has been bundled into the price. Then look at the premium. This guide takes each in turn, with the question to ask and why the answer matters. We've put our own answers in a table further down, so you can hold us to the same test.

Why the price is the wrong place to start

With car insurance, most policies do roughly the same job, so comparing on price makes sense. Tax investigation insurance isn't like that. The cover exists to pay your accountant's fees while they deal with HMRC for you, and policies differ on how much they'll pay, at what hourly rate, for which kinds of enquiry, and through whom. A lower premium is sometimes simply better value. Sometimes it's a smaller product. You can't tell which until you've asked the questions below.

The seven-point checklist

1. What is the most it will pay?

Every policy has a ceiling on the professional fees it will cover, usually set per claim or per year. Limits vary widely between providers. Most enquiries cost a few thousand pounds and never trouble the limit, but the rare long, complicated one is exactly what you're insuring against, so a low ceiling matters most on the day you need the policy most.

Ask: what is the fee limit, and does it apply per claim or across the whole year?

2. What hourly rate will it pay your adviser?

This is the detail people most often miss. Policies pay your accountant up to a maximum rate per hour. If your accountant charges more than that, the policy pays up to its limit and the difference is yours. A generous overall fee limit doesn't help if the hourly cap sits well below what your adviser actually charges.

Ask: what hourly rate does the policy pay, and what does my own accountant charge? It's a two-minute email to your accountant and the most useful number you can have to hand.

3. Is there an excess?

An excess is the first slice of any claim that you pay yourself. Some policies have one and some don't. It's easy to overlook because it never appears in the headline price, and a cheaper premium with an excess isn't cheaper on the day you claim.

Ask: is there an excess, and how much?

4. Who actually deals with HMRC?

There are two models. In one, your own accountant does the work and the insurer pays their fees. In the other, the insurer hands your case to its own panel firm or in-house team. Neither is wrong, but they feel very different when you're in the middle of an enquiry. Your own accountant already knows your records and how your figures were arrived at. A panel firm starts from a blank page.

Ask: can I choose who represents me, and does it have to be the firm that prepared my return?

5. Which HMRC disputes are covered?

"Tax investigation" covers a lot of ground, and policies don't all cover the same parts of it. The things worth checking by name:

• Aspect enquiries as well as full ones. An aspect enquiry looks at a single item on your return. They're the most common kind by far, so cover that only responds to a full enquiry leaves out most of what actually happens.
• VAT and PAYE. Compliance visits and checks on VAT and payroll, not only enquiries into your tax return.
• IR35 and CIS. If you contract through your own company or work in construction, check that disputes over IR35 status and the Construction Industry Scheme are included.
• Earlier tax years. HMRC can look back several years. Find out whether the policy responds according to when the enquiry opens, or only covers certain tax years.
• Who is covered. For a limited company, ask whether the directors' personal tax affairs are included or need a policy of their own.

Ask: if HMRC opened this specific kind of check on me, would the policy respond?

6. What's in the exclusions?

Every policy has edges, and it's far better to find them before you buy. Most fee protection policies exclude broadly the same things: enquiries that had already started before cover began, anything involving deliberate wrongdoing, the tax itself along with any interest and penalties, and the routine work of preparing your accounts and returns. Many also require the return under enquiry to have been filed on time.

The differences are in the detail. Read how each policy words its exclusion for circumstances you already knew about, and check for any types of tax it leaves out altogether.

Look at the conditions for buying as well. Most providers ask you to confirm a few things about your history with HMRC before they'll cover you, such as not having had a recent enquiry. Those declarations matter as much as the exclusions, because a policy bought on a declaration that isn't accurate may not pay out.

Ask: can I read the full policy wording before I buy, and what will I be asked to declare? If the answer to the first is no, that tells you something too.

7. What else is in the price?

Cover is sold in several ways: directly, through an accountancy practice's scheme, or as part of a trade body or membership package. Cover bought through a scheme or a membership is often perfectly good. It's just worth knowing what the price includes, because it can carry the practice's margin or the cost of a membership you may not otherwise have wanted.

Two related points. With a practice scheme, ask who holds the policy, you or the practice, and what happens to your cover if you change accountant. And with any policy, ask whether it renews automatically. Some people like that. Others prefer to be asked.

Ask: what am I paying for besides the insurance, and what happens at renewal?

How FeeProtect answers the seven questions

It would be a bit rich to hand you a checklist and not fill it in ourselves.

Question	Our answer
What is the most it will pay?	Up to £100,000 of professional fees per policy.
What hourly rate will it pay?	You choose: £180 or £300 an hour. If your adviser charges more than the rate you've chosen, the difference is yours.
Is there an excess?	No. The policy pays from the first pound.
Who deals with HMRC?	Your own accountant, or any suitably qualified accountant or tax adviser you nominate. It doesn't have to be the firm that prepares your returns. They invoice the insurer directly.
Which disputes are covered?	Full and aspect enquiries into Self Assessment and Corporation Tax returns, VAT and PAYE compliance visits, and IR35 and CIS disputes. Cover responds to the HMRC letter arriving while your policy is in force, however far back the enquiry looks. A limited company policy includes its directors' personal tax affairs at no extra cost.
What's excluded?	The tax itself, interest and penalties. Enquiries already under way before cover starts. Deliberate wrongdoing. Routine accounts and returns work. Returns filed late. Inheritance Tax and estate administration. Overseas tax authorities. Conditions apply when you buy, too: you're asked to confirm that you've had no HMRC enquiry in the last three years. The full wording is there to read before you buy.
What else is in the price?	Nothing. You buy direct, so there's no scheme or membership attached. Cover runs for twelve months with no automatic renewal. We send a reminder about three weeks before it ends and you decide.

You'll notice the table has no prices in it. They're all in one place, for every type of customer, in our guide to how much tax investigation insurance costs.

Quick questions

Is the cheapest policy the best value?
Sometimes. A policy with a low fee limit, a low hourly rate and an excess can cost less and still be the right fit for someone with simple affairs and an inexpensive accountant. The checklist won't pick a winner for you. It makes sure you're comparing like with like before you decide.

Is cover through my accountant's scheme the same as a policy of my own?
The cover is often similar. The usual differences are who holds the policy, whether it carries on if you move to another accountant, and what's included in the fee. Your accountant will be happy to explain how their scheme works.

Can I switch provider without leaving a gap?
Yes, as long as the new policy starts no later than the day after the old one ends. Before you switch, read what the new provider asks you to declare. Most will ask about your history with HMRC, and ours asks you to confirm you've had no HMRC enquiry in the last three years.

Is the premium tax deductible?
Generally not, and it's worth knowing before you factor it in. We've set out HMRC's position in a separate guide: Is tax investigation insurance tax deductible?

Can you tell me which policy is right for me?
We can tell you exactly what ours covers, and we're glad to. Which policy suits your circumstances is your decision, and if you'd like help weighing it up, your accountant is a good person to ask.

Run the checklist on us

Take the seven questions to any provider you're considering, us included. If you'd like to see our prices, pick your taxpayer type and hourly rate on the quote and buy page and your price appears straight away. And if you'd rather talk it through, we're on 01935 389812. You'll get a person, not a menu.

FeeProtect.com is arranged by Straight Solutions Ltd, an independent insurance intermediary authorised and regulated by the Financial Conduct Authority (FCA 315448). The insurance is underwritten by ARAG Legal Expenses Insurance Company Limited and administered by ARAG plc. Cover is subject to the policy terms and conditions. This guide is general information to help you compare policies. It is not advice on which policy is suitable for you.