Tax man suffers as firms take out inquiry insurance
A report in today's Guardian suggests that the Treasury could lose up to £220m in revenue, despite Gordon Brown and others getting tough on 'tax cheats,' as tax payers and legitimate tax avoiders engage professional advisors to not only reduce their tax bill, but also to offer advice and protection in the event of a Revenue inspection.
PCG membership now automatically includes investigation insurance to all contractors who sign up – but it appears that such insurance cover is becoming a necessity not a choice for small businesses. Yet another example of how the burden of being in business threatens to overwhelm the business itself.
Usually the insurance schemes cover the cost of hiring accountants and lawyers to mount a defence against the Inland Revenue in the event of any inspection. Apparently the Treasury expected to raise over £400m this year from inquiries into small businesses and the self-employed. With IR35, self-assessment and on-line payments, businesses are finding it increasingly hard to stay on top of the red tape. With other regulations as well – minimum wage, employment regs. etc small business owners are no longer prepared to keel over to the Revenue, but instead are prepared to take a stand against the interference.
As a result there has been an increase in the demand for special advisory services – often the advisors are ex-Revenue officials themselves. Apparently the average cost of fighting the taxman is estimated at £2,000. In the past, it would have been easier to pay up when asked for a similar amount by the Revenue. Nowadays, with better information and more of a 'stuff you' attitude, businesses are adding the insurance to look after their interests.
According to the best estimates available, 1 in 200 Limited companies are likely to be investigated as a result of IR35. However, we also know that Revenue resources are stretched, morale is low and that means if the IR comes after you, they will want to make a case. If you have good advisors on hand, it may cause the Revenue to look elsewhere for an easier target.