The Growing Importance of Tax Enquiry Insurance for Small Businesses and Self-Employed Individuals
With HMRC becoming even stricter on tax evasion, ensuring that your tax affairs are in order has never been more important. Yet, despite its importance, tax compliance is still an area of business ownership that has the potential to baffle business owners, and even the savviest can trip up.
Trades business owners are often charged by HMRC for the incorrect classification of off-payroll workers (IR35), leading to reclassification by HMRC and the business having to pay years of backdated taxes (including interest!) to make up for the supposed error.. Without a tax expert in their corner, tradespeople often have no idea of their true position and their right to challenge HMRC rulings, so often they pay up, meaning that the problem goes away, but it can often cost thousands of pounds worth in charges.
Fortunately, Rhino’s Tax Enquiry Insurance offers cover for your business in the event of an investigation into your tax affairs by HMRC, providing crucial cover and assistance in defending your business in the event of an enquiry, preventing you paying for unfair or incorrect rulings.
The Unpredictability of HMRC Enquiries
HMRC have an important role when it comes to monitoring tax compliance in the UK. Their aim is to ensure everyone is paying the correct amount of tax, including the trades industry. Like any industry, there exists a minority who might try to misrepresent their tax status to benefit themselves.
However, HMRC sometimes make mistakes. For example, they may incorrectly reclassify a small business’s employee as an off-payroll worker under IR35, which could result in charges or fines being levied against the business. In this scenario, it is the business owner’s responsibility to dispute the reclassification, otherwise they would have to the pay the charge that HMRC places upon them.
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 require legal advice and representation, which can be costly.
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 additional information, such as bank statements or CIS records.
It can be a highly stressful time for any tradesperson. Plus, HMRC investigations take time and resources away from your day job. This is especially bad news for tradespeople, because if you’re not working, you’re not earning. They can also come with serious financial implications. For example, you’d have to pay the full sum HMRC believe is overdue within 30 days, including interest from the date the tax was due. This can quickly grow into large amounts.
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 investigate 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 into further. And as outlined in the 2025 Spring Statement, the Government are looking to increase the number of individuals charged for tax evasion by 20%, so having Tax Enquiry Insurance in place should be something business owners consider.
Contractors and subcontractors can be especially at risk of investigations and are considered “high risk” by HMRC, especially those operating within the CIS, particularly following changes to off-payroll worker rules in recent years - so it's certainly a policy
For example, if you are a contractor who uses sub-contractors, HMRC can potentially re-classify those workers as employees, and calculate the tax that they believe should have been paid by you, presenting you with a huge backdated bill including interest.
How Rhino Trade Insurance Provides Peace of Mind during HMRC Enquiries
Tax Enquiry Insurance will give you the peace of mind you deserve should you find yourself the subject of an enquiry by HMRC.
No tradesperson should have to face a tax enquiry alone. Tax enquiries often happen despite no wrongdoing on the part of the tradesperson, and they 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’s finances.
With Tax Enquiry Insurance, you won’t need to worry as you’ll have access to advice from experienced experts on your side, plus a high limit of indemnity to cover the costs of defending your business.
Rhino’s Tax Enquiry Insurance offers cover in the event of these circumstances:
- 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 offers:
- An expert tax consultant to work on your case, saving you time and letting you continue working on your day job
- Up to £50,000 To cover the representation and defence of your business in the even of a tax enquiry by HMRC
- Access to a free 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, having expert advice is vital. 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, or if you are aware of an enquiry that is about to begin. For a full list of exclusions, always refer to the Policy Wording document in full before taking out any insurance policy.
If you want to find out more about Tax Enquiry Insurance, give us a call on 0116 243 7904 - or, if you've read enough already and want to protect yourself in the event of an HMRC enquiry, you can get a quote here.
