The professional fee insurance market is gearing up for increased growth as small businesses fight back against a planned tax grab by the Inland Revenue.
Small businesses are becoming more aware of the Inland Revenue's increased powers to mount an official investigation into their affairs and are taking steps to protect themselves, according to Abbey Tax Protection.
It said 50% of its clients subject to tax probes had to pay more tax compared to the usual figure of 90%.
The fledgling market for professional fee insurance only covers 20% of firms but is developing fast.
Abbey has learned that the tax authorities have been ordered by the Chancellor Gordon Brown to recover up to £444m in additional amounts of tax following his April budget.
Experts claim small businesses, particularly small traders, could be targeted because they are more likely to handle significant amounts of cash that could leak into the black economy.
Abbey Tax consultant manager Jeremy Leach believes the move to self-assessment has increased the stakes in favour of Inland Revenue investigators.
He said: "Revenue investigators no longer need to establish a primae facie reason before beginning an investigation. Their increased powers under the self-assessment system means the gloves can come off straightaway."
He added: "It's a far more intrusive experience that almost breaks the link between a small trader's business and personal affairs so that even private bank accounts can be investigated."
Abbey said that a small business has a 1-in -12 chance of its annual tax return being investigated.
However, figures from the Inland Revenue suggest it can recover between £6 and £100 for every £1 it spends on an in-depth tax investigation.
Conversely, Abbey estimates it can cost on average £2,000 to defend a routine tax investigation, with the cost escalating for a more detailed probe.
