The Growing Importance of Tax Enquiry Insurance for Small Businesses and Self-Employed Individuals
In the UK, tax compliance is absolutely essential for small businesses. And HMRC are getting stricter and stricter, meaning less leniency for business owners who make genuine errors.
Read on to discover how Tax Enquiry Insurance could be your best friend should you become the subject of a tax enquiry.
Despite its huge importance, tax compliance is still one area that still has the potential to baffle, confuse and utterly bewilder even the savviest of small business owners. Trades business owners have been known to agree to incorrect IR35 reclassification and pay years of backdated taxes (plus interest) on the strength of this. Without a tax expert in their corner, tradespeople often have no idea of their true position and their right to challenge HMRC rulings.
Here at Rhino, we don’t want this to keep happening to tradespeople. That’s why we want to shout about our Legal Expenses Insurance from the rooftops. This insurance offers a safety net which will protect you should HMRC open an enquiry against you, covering your costs and giving you access to the best legal advice during this difficult time.
The Unpredictability of HMRC Enquiries
HMRC have an important job to do when it comes to monitoring tax compliance in the UK. They want to make sure everyone is paying the correct amount of tax. This includes the trades industry, where like any industry, there exists a minority who might try to misrepresent their tax status to benefit themselves. However, the HMRC sometimes make mistakes, for example incorrectly reclassifying a small business as an off-payroll worker under IR35. Regardless, it’s not wise to try to deal with the legal and financial impact of a tax enquiry alone. Should a tax enquiry be opened against your business, you’d need legal advice and representation – and fast.
What Happens if HMRC Open an Enquiry Against You?
You’ll get a letter from HMRC stating their intentions to begin an enquiry and including the next steps. It may ask you to produce information, e.g., bank statements or CIS records.
It can be a highly stressful time for any tradesperson. Plus, HMRC investigations take a lot of time and resources away from your day job. This is bad news for tradespeople, for whom time is money. They can also come with serious financial implications. For example, having to pay in full the sum HMRC believe is overdue within 30 days, including interest from the date the tax was due.
HMRC tax inspectors can look at the past six years of your business records during an enquiry. If they suspect fraud, they can even go back 20 years.
How Common Are HMRC Tax Enquiries?
The truth is, HMRC can request to take a look at your income and VAT tax calculations, accounts, self-assessment tax returns, company tax returns and PAYE records at any time. It’s entirely possible that they will begin a random investigation, or they could have some questions about inconsistencies in your records they’d like to look further into.
Contractors and subcontractors can be especially at risk of investigations and are considered “high risk” by HMRC, especially those operating within the CIS.
For example, if you are a contractor who uses sub-contractors, HMRC can potentially re-classify your sub-contractors as employees and calculate the tax that they believe should have been deducted by you, presenting you with a huge backdated bill.
How Rhino Trade Insurance Provides Peace of Mind during HMRC Enquiries
Tax Enquiry Insurance from Rhino Trade Insurance will give you the peace of mind you deserve should you find yourself the subject of an HMRC enquiry.
No tradesperson should have to face a tax enquiry alone. Tax enquiries often happen despite no wrongdoing on the part of the tradesperson, and can rob countless hours of your time as you try to gather the relevant records, plough through correspondence and meet with legal representatives. Plus, it can quickly become unaffordable, as time off work plus legal costs means defending yourself against a tax enquiry can drain your business finances.
With Tax Enquiry Insurance from Rhino, you won’t need to worry as you’ll have access to advice, top experts on your side and a sizeable pot of money to cover your costs.
No matter whether you’ve been selected for:
- Tax enquiry – An enquiry by HMRC into your corporation tax or income tax self-assessment return following the issue of formal notification by HMRC. This includes Full Enquiries and Aspect Enquiries.
- CIS Status Review – an investigation into your CIS compliance, including employment status checks, CIS deductions and monthly returns.
- PAYE Compliance Review – A compliance and/ or control review or routine inspection undertaken by HMRC into the operation of PAYE.
- IR35 Enquiry - An enquiry conducted into your employment status under the PAYE and/ or NIC Regulations or IR35.
- VAT Check – compliance check to ensure you’re paying or reclaiming the right amount of VAT.
Tax Enquiry Insurance form Rhino will cover you for:
- An expert tax consultant to work on your case
- Up to £50,000 in expenses to cover legal fees, including the cost of hiring a tax consultant or solicitor, and court fees should your case reach that stage.
- Access to a tax advice helpline
- Correspondence and / or meetings with HMRC done on your behalf.
When you need to provide evidence of your tax status, or are defending your business against incorrect HMRC decisions, you need to call in the experts. The tax consultants we work with are some of the best in the UK. We won’t judge you – we will simply work with both you and HMRC, helping to get you the best outcome possible.
It’s important to know that there are some exclusions to this policy that you should be aware of. For example, you can’t take out a policy to cover investigations that have already begun. For a full list of exclusions, always refer to the Policy Wording document in full before taking out any insurance policy.
