Tax  

Govt considers mandatory PI cover for tax advisers

Govt considers mandatory PI cover for tax advisers

HM Revenue and Customs is looking at making it mandatory for all tax advisers to get professional indemnity (PI) insurance as part of the government's efforts to raise standards in the market.

In a consultation, published this afternoon (March 23) as part of ‘tax day’, the tax authority said that in order to raise standards in the sector, requirements need to be consistent across the tax advice market and therefore it was looking at making PI cover mandatory for all advisers.

By doing this, HMRC said it will improve tax advice and provide taxpayers with better access to redress in cases where they have received bad advice. 

Article continues after advert

While solicitors and independent financial advisers must have PII, it is not currently mandatory for tax advisers to hold this insurance.

However, most of the tax, accountancy and law professional bodies require their members to hold it as a condition of membership.

The government estimated there are 72,000 tax advisers, of which about 70 per cent are professional body members. This leaves around 21,000 advisers who are unaffiliated and therefore less likely to hold PII.

Minimum levels

However, HMRC said it was aware that by making PII compulsory it could drive up costs and could price good tax advisers out of the market.

Therefore it is considering whether it should set out minimum levels of cover, excesses and other mandatory aspects of insurance that anyone providing tax advice should hold.

HMRC stated: “The advantage to setting out certain minimum mandatory levels of cover is to ensure taxpayers are adequately protected. 

“If advisers are able to underinsure then taxpayers may not receive the improvements in the level of protection the government is seeking to achieve.”

Some bodies already require minimum levels of cover which is often linked to fee income.

HMRC pointed to the Institute of Financial Accountants (IFA) as an example, which requires members to hold PI cover of 2.5 times gross annual income or £100,000 if gross fee income is under £400,000. If fee income is over £400,000, cover must be £1m. 

HMRC warned the level of excess had to be set at the right amount: not so high that it becomes unaffordable, and not so low that taxpayer protection is compromised.

But it said this must be balanced against the potential for lower excesses to drive up the price of premiums for advisers which may in turn be passed on to taxpayers. 

HMRC has also set out that tax advisers should not be allowed to take up insurance which offers exclusions, for example, if a policy excludes tax planning as an insurable activity. 

HMRC stated: “In the event that the firm or individual undertakes ‘risky’ and therefore more expensive activities, it should expect to cover these in the premium of the insurance it purchases, or if it is unable to obtain insurance for those activities, it may have to stop doing them.”

Enforcement

In order to ensure advisers have the appropriate cover, HMRC has suggested it will run checks when individuals request access to online services, request an agent code, or request to be authorised to act on behalf of a client.