22 Jan Tax Inspection Insurance – Is It Worth It?
There are two potential financial outlays for a club or coach when they are selected for a tax inspection – the possibility of having to pay backdated tax/penalties and the cost of using an accountant to represent the club/coach throughout the investigation.
The first can only be minimised by ensuring all tax affairs are in order. The cost of the accountant can be minimised through tax inspection insurance and should not be underestimated – a recent investigation for a sports club in the north of England resulted in a bill from their accountants of over £4,000 for representing the club during the seven months the investigation lasted. The club were offered tax inspection insurance by the accountancy firm but decided that the £165 cost they were quoted was money they could save.
So what is tax inspection insurance and is it worth taking out? Tax inspection insurance is a policy that is designed to cover the costs associated with using an expert to represent you throughout the duration of a tax inspection. As you can see from the example, the premium is well worth it if you are actually subject to an investigation, but this should always be weighed up against the likelihood of being chosen for an investigation, which is around 5% for the sports sector.
There are a number of brokers who can provide this insurance cover and it can also be obtained from many accountancy firms. It is important to ensure that you read the terms and conditions carefully – find out what types of investigation the cover is for, the maximum amount it will pay out, etc. It is also important to ascertain who will actually represent you during the investigation – will the insurance allow you to use your own accountant or will an independent expert be assigned?
Membership of some professional bodies such as the Federation of Small Businesses provides an element of free tax advice and cover for inspection costs so this can be an alternative to specific cover. Check the small print to find out how this type of support compares with a dedicated policy and seek further advice if unsure.
Some accountants do not recommend the cover under any circumstances, usually because they believe the risk of inspection is so low. We would recommend that all clubs/coaches consider whether it is right for them – the annual premium is relatively inexpensive (and tax deductible) and the cover does provide ‘peace of mind’ for those who would struggle to afford to pay the typical £2,000 to £5,000 accountancy fees associated with expert representation.
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