The scam of tax fee insurance

A letter to my MP, dated 1 Feb 2005

Hi

As the owner of a Ltd company, was surprised when my accountant recently wrote to me about "Tax Fee Insurance". This seems to be a new tax on honest businesses that file on time and have accounts in order and seems to be a new way for the inland revenue to scam honest businesses out of possibly thousands of pounds, just because they are unlucky in the Inland Revenue lottery.

How it works:
1. The inland revenue encourages people to do self assessment and file online. This puts the donkey work onto ordinary people, thereby freeing up resources in the Inland Revenue for random checks.

2. As a result, more random checks are done and the figures I have is that this is now about 1 business in 10.

3. As a result of an "Aspect" or "Full" enquiry randomly selected businesses are investigated once they have filled in their annual accounts, even though there may be no suspicion of anything wrong, it is simply a random audit.

4. My accountant, who prepares the accounts has to get involved.

5. My accountant then bills me for the time they spent talking to the Inland Revenue on my behalf. Accountants are not cheap and £100 an hour is at the lower end of what they charge.

6. Accountant then presents me with a bill for several hundred or possibly thousands of pounds which I have to pay, even though it was the Inland Revenue who requested the time and work.

7. I am then several hundred or thousand pounds out of pocket even though I have done nothing wrong and my books are in order.

8. To protect me from this scam a new industry has sprung up offering "tax fee protection insurance". Rates are often £100-£120 a year and based on fixed annual renewal dates. So if you join a scheme in May and the renewal date is November, you still pay the full whack even though it's for only 6 months cover.

Can I suggest that this is hardly the spirit of enterprise and is a wholly unwelcome financial burden on small companies which are doing nothing wrong. It's random taxation.

My view is that these random audits are no bad thing, but if the Inland Revenue needs to do them, the Inland Revenue should pay. Has anyone ever tried taking them to the small claims court for this? Perhaps I could adopt the same tactic and bill the Inland Revenue for excessive time spent form filling, excessive bureaucracy, and so on. After all why should the small business have to keep forking out for dealing with Inland Revenue issues? How is this fair?

Note: Subsequent to writing the above I had the question raised in the House of Commons.