Tax Investigation Insurance:
What to look for in Professional Fee Insurance

This article acts as a general introduction to Professional Fees Insurance, detailing how it works and how it may benefit a practice. PFP Sales Advisor, Ali Smith gives some pointers of what to look for.

What is PFI?

Professional Fees Insurance, which ensures the recovery of professional costs incurred when dealing with a tax investigation, has been used by accountants since the 1980s. However, the need for such protection has dramatically increased in the last 10 years due to the arrival of Self-Assessment, the emergence of the 'random' enquiry and more recently the new powers and penalty regime being implemented.

Diligence and accuracy is no longer enough to ensure your clients will not face a tax enquiry. This raises a problematic situation. Clients are likely to be disgruntled enough by an enquiry without being faced with a hefty bill from their accountants on top of any extra tax, interest and penalties. Tax enquiries take time and often require the input of senior staff and experts - costs can easily be thousands of pounds.

Professional Fee Insurance covers an accountant's costs in the event of an enquiry, ensuring full fee recovery for you and peace of mind for your clients.

How does it work?

There are two general applications of Professional Fees Insurance. Either the Accountant or the Client can be insured.  An Accountant does not have to be FSA Authorised or DPB Licensed.  Prices depend upon the level of cover and the number of clients to be included.  Numbers can range from no minimum numbers to all clients.

What's in it for me?

Professional Fees Insurance can be beneficial in various ways. Primarily, it promotes good client relations and general client satisfaction and can serve to boost acquisition and retention rates. Most professional institutes oblige accountants to at least inform their clients about the insurance to meet Best Practice guidelines.

Many accountants feel that the insurance gives them more control over the tax enquiry process. This comes not only from having the cashflow and resources to fully defend a claim, but also from the additional support some fee protection providers offer. For example at PFP accountants receive updates about general enquiry issues, support from the Claims department in the event of an enquiry and access to independent experts should they require them. They can also rest easy in the knowledge that they will be the one to act for their client should a claim arise.

Finally, a Fee Protection scheme can earn valuable extra revenue for a practice. Depending on the scheme, the accountant will either receive a commission per client or a service charge; these can both be set by the accountant.