So what's all this TII, PEI and LEI stuff?

A. They are all terms for an insurance, which helps to cover the expenses associated with legal and other costs that your business may incur and for which a claim can be made on PCG�s Professional Expenses Insurance (PEI) Policy. Sometimes the terms are used to mean the same thing.

Legal Expense Insurance (LEI) is usually a general insurance to cover any legal costs your business may have including employee disputes, health and safety and so on.

Professional Expenses Insurance (PEI) tends to cover expenses other than legal - often for the services of an accountant or a tax specialist or similar.

Tax Investigation Insurance (TII) also covers professional expenses, and is specifically targeted at tax disputes, notably IR35 and s660.

Does PCG�s Professional Expenses (Tax Investigations) Insurance cover IR35 investigations?

Yes, and it also covers all tax investigations, VAT and NI Disputes (see summary of cover).

Will the insurance cover any additional tax or fines imposed by the Inland Revenue if I am caught by IR35?

No, the Policy covers the professional costs of dealing with an investigation. These are the fees of the appointed specialist tax consultants, but may, at the discretion of the Insurer, also include any necessary costs of your Accountant. Such costs will include the gathering of necessary information to answer the Inland Revenue's queries and representing you at a hearing with the Commissioners. It does not cover any taxes or fines levied if your appeal is unsuccessful.

It is possible to buy insurance cover against having to pay additional tax or fines imposed by the Inland Revenue.

A number of PCG Affiliates offer such insurances. These include Accountax, and Lawspeed. You can find contact details for these companies on our affiliates page : http://www.pcg.org.uk/resources/PCGAffiliates.html

Do I need to be working to one of PCG's model contracts in order for a claim to be made? I'm confident that my existing contract has the correct wording required to cover IR35.

No, but the Insurer has the right not to support weak cases based on the advice of their tax advisers. Hence if your contract was evidently one of disguised employment, then they would be less likely to support you and more likely to press for a speedy settlement.

I have been supplying a service full time to one client for the last four years. Can a claim be made on the insurance if I am investigated?

This will depend on all the circumstances. Four years full time at one client is always likely to be an issue although it may not be determinative of your status depending on the other key terms of your contract.

Will PCG take my case up as far as the commissioners if I am investigated?

The Policy covers costs as far as a Commissioner's Hearing if necessary. However, it is the Insurer's decision, not PCG's, whether to take the case this far.

If I become a member myself, are the directors and shareholders in my company covered too?

No, the Policy only covers full legal members of PCG, but the Insurer will extend cover for that legal member's spouse or co-habiting partner if he/she is an employee of the contractor's company - provided the spouse/partner is not also a contractor working through the company as an employee or director. If there are other contracting directors in the company who are not members of PCG, the Policy will not cover those individuals but it will apportion the costs of the company enquiry and pay the proportion that relates to the PCG member (assuming that the claim has been accepted).

The Insurance will not cover an enquiry into any business interests that the spouse/co-habiting partner may have outside of the contracting company.

What if I contract both through my company and as a sole trader?

In this situation the policy can cover a claim made for investigations into both your company and your activities as a sole trader as this scenario is unlikely to increase either the risk of investigation or the costs of the investigation.

Does PCG�s policy cover investigations relating to my personal tax affairs? What about any business interests falling outside my consultancy/contracting work?

There is no cover for personal tax investigations unrelated to the member's business. However, if a business tax investigation is made against a legal member that embraces or examines his or her personal tax affairs at the same time, cover will be provided by the Insurer, subject to that member's external personal income not exceeding �15,000. Personal income would be deemed to include things such as dividends, interest, rental income and pensions. If the personal income exceeds this limit then there is no cover under the Policy, however the Insurer will apportion the costs of the company enquiry and pay those (assuming that the claim has been accepted). Consideration may also be given to reimbursing some of the costs incurred relating to that extra element to the claim.

What about any business interests falling outside my consultancy work?

It is at PCG�s discretion whether a calim will be made under the Policy for any business activities outside of the contractor's principal contracting/consulting business. If a full legal member of PCG has two companies, one for contracting/consulting and one for something else, then the Policy only covers the contracting/consulting business. Nevertheless, the Insurer has declared that they will consider a claim made by PCG on behalf of a member under the Policy provided that:

• the member's principal contracting/consulting business comprises more than 50% of the overall annual business income, and
• annual turnover derived from the second unrelated business stream does not exceed �100,000.

The reason for these distinctions is that the Insurer has to make certain assumptions about the nature of the risks involved. These risks could change if members had significant levels of business income that arise from businesses that operate in a totally different business and tax environment. If these limits are exceeded then there is no cover under the Policy, however the Insurer will apportion the costs of the overall enquiry and pay those (assuming that the claim has been accepted). Consideration may also be given to reimbursing some of the costs incurred relating to that extra element to the claim.

When must a claim under the tax investigation policy be notified?

Immediately. As soon as you receive notice from the investigating authority that you are to be investigated, you must notify PCG immediately and certainly within the period of insurance. Normally such a letter will notify both you and your accountant of the intention to investigate and will mention that the enquiry is taking place under Section 24(1) Schedule 18 Finance Act 1998 (for Limited Companies), Section 12AC of the Taxes Management Act 1970 (for Partnerships) or Section 9A of the TMA 1970 (for sole traders and Individuals). Notification is made by contacting PCG.

In the case of a VAT dispute, any letter sent to you by Customs and Excise following an inspection, which expresses dissatisfaction with your records, should be notified to PCG. If in doubt, please ring the tax helpline to make sure that you get the most out of your PCG membership.

The same approach should be taken following an Employer Compliance Visit - if you have Route35 or PCGPlus membership with PAYE Audit Cover, you should be notifying PCG immediately you become aware of a visit.
Please see www.pcg.org.uk/membership/pcgplus/auditcover for more information.

If you have any queries, or are unsure whether your circumstances constitute a claimable event, then please telephone the Tax Investigation Helpline (0845 125 92 52) and quote your PCG user name for identification. A Tax specialist will then advise you on your situation and the next steps you should take.

Please remember that PCG�s policy provides for representation by IR35 specialists and so if you incur professional costs before advising PCG, then not only are insurers NOT liable for those costs, but you could be missing out on best representation.

Can a claim be made if I submit a contract to the Revenue who then advise me that, in their opinion, it fails IR35?

Submitting a contract to the Revenue for an opinion does not, by itself, exclude you from cover under the Policy. However, the Policy does not cover a challenge against such an opinion, as it does not constitute a formal investigation into the accounts, which is normally notified by a Notice of Enquiry letter. An opinion of this kind needs to be taken into account and a member is advised to seek professional assistance to ensure that a subsequent challenge could be defended.

If, having received such a response from the Revenue the member is subsequently investigated the existence of the previous Revenue opinion will be relevant. Naturally it will be in your interest to demonstrate that you had reasonable grounds for taking a different view from that of the Revenue, such as taking corrective action and / or seeking professional advice, as this will be reviewed by the Insurer under the prospects of success clause in PCG�s policy.

Can a claim be made on my behalf if, once an investigation has started, my PCG membership comes up for renewal and I do not renew it?

Yes, PCG has the discretion to continue with a claim on its policy in such circumstances.

Can a claim be made on my behalf if my PCG membership comes up for renewal and I get notice from the Inland Revenue of an investigation before I get around to paying my PCG membership renewal fee?

Again, PCG has the discretion whether or not to make a claim on its policy and in such circumstances PCG will judge each case on its own merits. As a rule of thumb, however, it is best to renew membership promptly and assume that PCG will NOT make a claim!

Can a claim be made under PCG�s Professional Expenses Insurance policy if I give up my membership of PCG?

No.

You must remain a full legal member of PCG in order to benefit from our professional expenses insurance coverage on an ongoing basis. However, subject to the Policy's terms and conditions, it is possible to continue to benefit from PCG�s tax investigations service in respect of any investigation that has been notified to the Insurer and accepted before your membership ceases.

If I were to rejoin PCG would the Tax Investigation Service be available to me again?

Yes.

However, if you were to notify an event at some point soon after rejoining PCG, PCG and the Insurer would look very carefully at whether you were aware of an impending problem when rejoining PCG. It is much better to run continuous membership / coverage if possible. Contact PCG office if necessary.

Why does the Summary of Cover state that the insurance expires on 31 December 2005?

The PCG Tax Investigation Insurance policy is a group policy taken out by PCG on behalf of its members. The group policy runs from 1 Jan to 31 December annually, and the Summary of Cover shows the expiry date of the policy as 31 December. The PCG group policy with the insurers has been renewed to cover until 31 December 2005, and the updated Summary of Cover, can be printed from here:
(http://www.pcg.org.uk/insurance/taxinvest_summary_of_cover.html)

It is PCG's aim to maintain this policy and effect a renewal each year. However, PCG cannot guarantee that the terms or benefits under the Policy of Insurance will remain unchanged throughout the period of your PCG membership.

What happens if I am also covered by another tax expense policy - for example through membership of the FSB?

The answer will depend whether you have an event for which a claim can be made under both policies. If this is the case, it is likely that the two Insurers will agree with each other, which one should run the claim, and they are likely to agree to share the costs of the claim. In any event, you will be asked in the PCG Claim Form whether you have any other insurance that might cover the event for which PCG could be making a claim under its policy.

I have two un-associated companies, where the second is not a subsidiary of the first. Can a claim be made for tax investigations against either company? See question 9 above.

If you have only registered as a full legal member under the first company, then a claim cannot be made if the second company is the one giving rise to the investigation. You should join PCG twice notifying them of each company separately if you want to be certain that you have the tax investigations service in respect of both companies.

What are the differences between a full enquiry, an aspect enquiry and a routine PAYE enquiry?

• Full Enquiry
  
  A full Enquiry is when the Inland Revenue issues the relevant Notice and asks to see the books and records required to make up the Return or accounts. This may lead to protracted correspondence and the Revenue will be keen to meet with you at some point.

• Aspect Enquiry
  
  These are generally enquiries into one or two specific entries on the Return whereby confirmation of the information is needed. The assumption is that in general terms the Revenue is happy with your return, but has specific matters (�Aspects�) to clarify with you.
  
  
• Routine PAYE Enquiries
  
  Enquiries where there is no challenge into the treatment of any tax or NIC matters and which follow on from a control visit to ensure that the operation of PAYE is being operated correctly - for example on expenses etc. These control visits are not covered by PCG�s PEI policy. An enquiry is only deemed to have commenced if the Inland Revenue notify that they were not satisfied with what they found and have written with details of their queries. If there are grounds to challenge the Inspector's proposals (�a reasonable prospect of reducing the alleged arrears�), then the Insurance policy can react from that point (subject to PCG receiving acceptance of the claim).

What should I do if I wish to make a complaint about the handling of my investigation under the Policy?

We hope this is not something you will need to do, but should it happen, then you should initially contact PCG who in turn have been given full details of ATP�s complaints procedure as set out in the Policy.

PCG standard contractor membership entitles all members to acquire an interest in PCG�s PEI policy (PCGPlus membership provides the same for PAYE Audit Cover), but does not give members direct rights against the insurer, as it is PCG�s policy.

Nevertheless, we are comfortable with the level of service that has been provided by Abbey Tax and believe that we also have sufficient safeguards in place to ensure that complaints from members will be dealt with efficiently and fairly.

In any event, if PCG has been unable to resolve any issues relating to the handling of your enquiry with the Abbey Tax then PCG will have no hesitation in complaining to the Financial Services Authority, which is the industry regulator for general insurance.

Who provides the cover?

Since 1 January 2004, PCG�s Professional Expenses (Tax Investigations) Insurance Policy has been provided by Brit Insurance Limited via Abbey Tax Protection Limited. In addition to Abbey tax�s own consultants, certain cases have been handled by Lawspeed and from 1 January 2005 Accountax will also be handling IR35 cases on members� behalf.

My investigation pre-dates January 2004; will my case handler change?

No.

If you have already receiving support from a case handler under a previous PCG policy, then they will continue to provide support until your case is closed.

Detailed PAYE FAQ

Is a normal PAYE audit covered by the PCG Tax Investigation Insurance?

No. The initial visit is merely a compliance visit whereby the Inland Revenue officer will review the way in which the company operates and whether or not it has complied with its requirements to operate PAYE correctly. If the officer is not satisfied he will write to the company pointing out the areas he is not happy with. If the Inspectors proposals are accepted then the additional tax is paid and the matter is concluded.

However, if there are issues that are debatable then this is the point at which an investigation is considered to start.

If you do not have PCGPlus and so cannot make use of the PAYE Audit Cover service, then it will still be possible to arrange for consultancy assistance. Please contact Abbey Tax for more information.

Please be aware that it is always better to ensure that the visit is handled well to avoid becoming embroiled in a Dispute.

What should a contractor do if there are issues that are debatable?

A PAYE investigation is covered under the policy from the point at which the Inspector writes to say he is dissatisfied with what he has found during his review AND where there are reasonable prospects to reduce the alleged arrears. At this stage PCG can complete a claim form on behalf of the member (available here; PDF download) and forward a copy of the Inspector�s letter to Abbey Tax. The Insurance policy will cover the costs of one of the consultants to defend the member.

What this means is that there are prospects to improve the current position the member finds himself in.

For example, if the Inland Revenue had identified that there were a number of cars provided to employees that were not declared on P11D's then there would have been a failure to operate PAYE and the tax assessed would be due - subject to agreeing the cars that were included on the assessment.

However, if for example, there were arguments over the apportionment of expenses or the tax status of subcontractors then there are almost certainly grounds to support and fight the case.

To put this in perspective to date all PCG PAYE enquiries have been supported.

But once again, if in doubt, please make the call.

What should a contractor do if they are contacted by the Revenue regarding a PAYE audit visit?

All members who are about to receive a routine visit can use the free telephone tax help line provided by Abbey Tax under the PCG tax expenses policy to speak to one of their consultants.

As a general rule the PCG advises that:

• Wherever possible arrange for the records requested to be viewed at the accountants.
  
• Only supply the information asked for and check with the Helpline that they are entitled to see what they have asked for.
  
• Do not be present at the time they review the records. There is no requirement to attend an interview. This way you cannot say anything that will prejudice the enquiry if the Inspector asks leading questions. Therefore the Inspector will be forced into putting his requests for further information in writing.
  
• If you do want to be present then be very careful how you answer questions. If in doubt ask the Inspector to put his request in writing so that you can discuss the response with one of our consultants.

What is the Inspector entitled to see or ask for?

The inspector is entitled to request any documentation relating to the company that may have an implication on the amount of tax and NIC due. This does NOT include information that is personal to the contractor.

Therefore, as there are tax implications with regard to the status of contracts they are within their rights to request these. As regards any additional information or contracts not originally requested the Inspector can ask for these as they may only become aware during the course of the meeting. However it would not be unreasonable to say they will be forwarded following the meeting -allowing time to get an opinion on them.

The most recent notifications have come with a list of records that the Inspector would like to review which are the basic prime records a business would expect to keep to enable accounts to be prepared. E.g. Sales and Purchase ledgers, Cash book, Bank statements, Expense claims, Petty cash etc.

Added to the covering letter we have seen requests for contracts to be made available for review. As previously stated the Inspector does have the right to ask for this information as the status of an individual does have a direct bearing on the amount of tax and NIC due.

If the taxpayer does refuse to supply the contract, it is only likely that the Inspector will issue a Section 19 notice to supply information and furthermore it is likely to be treated as a lack of cooperation that will be taken into account when mitigating penalties if any fall due. Therefore, we would advise that the contracts be supplied if requested but not otherwise.

What sort of areas should a PAYE review cover?

• Details and background of the company.
• Procedures regarding expenses claims.
• Authorising expense claims.
• Entertaining.
• Vouchers or subsidised benefits such as canteens.
• Travel subsistence.
• Overseas travel.
• Company cars.
• Fuel benefit.
• Telephone.
• Other benefits.
• Provision of assets or goods transferred to personal.
• Incentive schemes.
• Goods or services provided below market value or free of charge.
• Payments of bonuses or dividends to directors
• Subscriptions - professional or other.
• Operation of PAYE.
• Petty cash review.
• Status of subcontractors.

The list is not exhaustive and will be tailored to suit the company under enquiry but it will give you an idea of the areas covered by a PAYE enquiry. If discussions move away from these points and more towards contracts and IR35 you *must* establish directly if the meeting is becoming a status review.

If I want someone to assist me with a PAYE audit meeting what can I do? (i.e. no accountant available etc)

Many accountants and tax advisers can assist contractors through the initial meeting or, preferably, act on their behalf without the contractor having to be there. Alternatively the information could be sent to the adviser's office and they would arrange for the Inspector to visit here.

This would reduce costs as there would be no travel time or waiting periods while the Inspector reviews the records. The advisers could then deal with some or all of the concerns at the initial meeting stage.

If you are concerned about the risks and costs that your business might suffer during a future PAYE review, then you may consider upgrading from standard membership to PCGPlus membership, which includes PAYE Audit Cover, details of which may be found at www.pcg.org.uk/membership/pcgplus/auditcover

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