Tax audit insurance is a type of insurance that protects taxpayers from being audited. This can be a helpful product to have if you're nervous about whether or not your tax returns are accurate enough to avoid an audit.
Tax audit insurance is most commonly used by people who have income that's hard to track, like day traders or freelance workers. But it might also be useful for homeowners who receive rental income or businesses with complicated tax situations.
Professional associations
Professional associations are not covered by tax audit insurance. The reason for this is that professional associations are not considered to be a business or commercial activity in most countries.
These types of organizations may be eligible for tax audit insurance if they are operating as a non-profit organization, and they can qualify based on their annual revenue, number of employees and other factors.
If you are operating a professional association and want to know if you qualify for tax audit insurance, it is best to check with an insurance agent. They will be able to tell you exactly what types of organizations qualify for tax audit insurance and what the requirements are.
Tradesmen and specialist contractors
Tradesmen and specialist contractors, such as construction companies, architects and engineers, can also be targeted by tax authorities. If you are a contractor who has been asked to provide information about your clients or if you have received an audit from HMRC then you may want to consider purchasing this cover.
Like most other types of insurance policies there are certain exclusions which may mean that your claim is not valid for tax audit insurance. Some of these exclusions include:
-Tax evasion or fraud. -Failure to comply with the rules of HMRC. -Your business is not profitable.
Private clients of financial institutions
Because of the nature of their business, it's not uncommon for financial institutions to attract private clients. This can be a good thing because they already have many of the tools and resources needed to make sure these clients are audited as little as possible.
However, if you are one of these individuals or families—or even know someone who is—you will want to take extra precautions in protecting yourself from an audit.
You might not realize it but when you work with a financial institution (investment bank), they are required by law to report certain information about their clients' activities every year; specifically:
- The value and type(s) of assets held by each person on behalf of whom services were performed
- Investment income received from each such person
The nature and extent of such person's investment in any material transactions with the financial institution, including the amount of any loss or profit realized on such transactions.
The identity of each source from whom the financial institution received cash or other assets to be held for safekeeping.
Conclusion
We hope this Audit Insurance article has helped you understand what triggers a tax audit and how to protect yourself against it. If you have any questions about your own situation, please feel free to reach out!
Source: https://apxiumsoftware.home.blog/2023/01/26/most-common-triggers-of-tax-audit-insurance/