Are you aware that the UK tax authorities have boosted the number of tax inquiries dramatically in recent years? Number of tax audits on small business owners has increased to 60% since 2010. This means there has never been a better moment to secure your company with tax investigation insurance.
Is there vat on tax investigation insurance?
Yes, there is value added tax (VAT) charged on tax investigation insurance premiums in many countries. The standard VAT rate applies, which is typically around 20% in European countries. Some key points about VAT on tax investigation insurance:
- The VAT is charged on the total insurance premium paid, including any policy fees or administration charges.
- VAT is payable whether the policy covers individuals or businesses.
- The VAT rate depends on the country where the insured business is located or where the individual policyholder resides. The location of the insurance company itself is irrelevant.
- VAT on insurance premiums is usually recoverable by VAT-registered businesses as input tax, subject to the normal rules. Individuals and non-VAT registered firms cannot recover the VAT.
- The VAT treatment applies equally whether the policy covers tax investigations, tax disputes, or other tax-related issues. The nature of the cover does not affect the VAT liability.
Is tax investigation insurance tax deductible?
In many jurisdictions, tax investigation insurance is a business expense and tax-deductible. This implies you can deduct this insurance’s premiums from your taxable income. However, tax regulations can vary widely depending on your area and the kind of your business, so it’s always a good idea to contact with a tax specialist or your local tax authorities to get the most precise information for your circumstance.
What is Tax Investigation Insurance?
Tax investigation insurance protects individuals and companies from financial loss in the event of a tax investigation conducted by a government agency such as the IRS in the United States and HMRC in the United Kingdom.
Government agencies review an individual’s and company’s tax returns, financial records, and other relevant documents to ensure compliance with tax laws and regulations.
Individuals and companies may need to hire tax specialists to assist them in managing the inquiry, which can be time-consuming and costly.
Tax investigation insurance is intended to provide protection in the events of an innocent mistake or error on a tax return, rather than intentional wrongdoing.
What is covered by Tax investigation Insurance?
- Cover the costs associated with a tax investigation, including professional fees, legal fees, and other expenses
- A HMRC investigation on business tax return
- Fight with HMRC about the collection of more VAT
- Fight with HMRC over increased PAYE tax or National Insurance Contributions.
- Conflict with HMRC over the tax status of employees or subcontractors
- Complete representation before HMRC on your behalf. This includes dealing with all mail and interactions, as well as attending any one-on-one meetings.
- Professional fees up to £100,000 are covered with no excess.
- Access to a FREE business legal helpline
- Insure you against unpaid taxes, national insurance due and fines
Tax investigation insurance provides protection in the event of an innocent mistake or error on a tax return, rather than intentional wrongdoing and tax theft.
What is not covered by Tax investigation Insurance?
Tax Investigation insurance doesn’t cover the following Things:
- Outstanding HMRC taxes, fines, interest, or other sums
- Client defense in criminal prosecution cases or major fraud investigations
- Costs for pre-existing tax enquiries or enquiries where tax returns were submitted to HMRC after the statutory deadlines (90 days)
- Tax avoidance schemes
How does tax investigation insurance work?
- If you are the subject of an HMRC tax inquiry, tax investigation insurance will pay your professional fees.
- Tax investigation insurance covers up to £100,000 in professional fees.
- Insurance for tax investigations HMRC inquiry is dealt with.
- Participating in HMRC meetings up to and including an appeal to the First-tier Tribunal or Upper Tribunal
Here are some main Main policy benefits of Tax investigation insurance:
- If you get mail or are visited by HMRC and are subject to HMRC penalties, your adviser will defend you.
- The policy allows you for the refund of potentially high professional fees for defense.
- Because of concerns regarding professional fees, you will not be forced to pay exorbitant HMRC tax charges.
Why do you Need Tax Investigation Insurance for HMRC investigation?
HMRC has introduced several new protocols in recent years in an effort to crack down on people and companies who do not pay sufficient taxes.
Initially, HMRC offered tax amnesties to taxpayers in exchange for voluntary disclosures of undeclared taxable income and the cancellation of tax penalties. Then it was disclosed that HMRC would start conducting spot checks on site offices, during which officials would inspect tax documents ranging from corporate revenue and PAYE to NI, Capital Gains, and VAT.
If you pay tax, HMRC may visit you at any moment to review your records. Even if you’ve been honest and correct in your tax declarations, they may initiate an investigation, which could be costly.
Appealing a decision can cost you even more money, as well as your valuable time, which we know is in limited supply if you own your own business.
With spot checks becoming increasingly widespread (one in every ten small businesses is currently undergoing a tax inquiry) and slight irregularities warranting full-scale audits that can last months, more people are wisely choosing to safeguard themselves and their assets with tax investigation coverage.
Types of Tax Investigation Insurance policies:
Tax Investigation Insurance covers HMRC tax investigations for businesses and individuals. There are several types of Tax Investigation Insurance policies given below:
Full Enquiry Coverage:
Tax Investigation coverage provides coverage for the costs of full tax investigation by HMRC. This insurance covers legal fees and other taxes resulting from the investigation.
Aspect Enquiry Coverage:
Tax Investigation Insurance covers also review of VAT records or an investigation into capital gains tax.
Self-Assessment Coverage:
This policy covers HMRC investigation fees for self-assessment tax returns.
PAYE Coverage:
Tax Insurance covers HMRC investigations into employers’ PAYE tax records.
IR35 Cover:
Tax Insurance also provides coverage for the costs of an HMRC investigation into an individual’s employment status under the IR35 legislation.
Why you can be subject to a tax investigation
HMRC may decide to investigate your affairs for a number of reasons, including:
- The Mortgage Verification System allows mortgage providers to pass an applicant’s financial information with HMRC. Variations between the income claimed on the mortgage application and the information possessed by HMRC could result in a tax investigation.
- Credit and debit card processors must report sales to HMRC. To authenticate card income and determine cash declared, HMRC compares this information to retail store revenue.
- HMRC’s tax evasion hotline receives 80,000 reports annually. Beware of a betrayed spouse, disgruntled ex employee, or jealous business competitor!
- Smaller businesses including painters and decorators, driving instructors, taxi drivers, and pharmacies use benchmarking.
Every year, HMRC chooses a percentage of inquiries at random. An inquiry into your company could simply be the consequence of an unlucky mouse click.
What causes a tax investigation?
HMRC collects data from tax returns, existing assets, social media, offshore bank accounts, third parties and from others secret sources. Examine this data for mistakes.
Random taxpayers can receive spot check notices. Even if you meet all legislative requirements, you could be investigated for taxes. The probe will be the same regardless of the reason.
Tips for business owners to avoid and win tax investigation
- Ensure that you are aware of all of your tax liabilities.
- Consult your accountant or a tax counselor.
- Check records for completeness and accuracy on a regular basis.
- Try using bookkeeping software to keep track of your finances.
- Maintaining accurate records of all invoices, receipts, and bank statements and keeping them up-to-date and easily accessible.
- file your tax returns on time and pay any taxes owed
- Hire a reputable and loyal accountant
- be cautious about claiming deductions that you are not entitled to
- Don’t forget to report rise in income
