News that the Inland Revenue aims to find more than three-quarters of people they investigate guilty could boost the tax insurance market, claims Composite Legal Expenses.

Tough new objectives have been published on the agency's website under its key operations targets for 2001 and 2002. The Inland Revenue said that 76% of individuals or businesses it examined had paid too little tax.

To guard against growing revenue investigation powers, Composite operates tax liability cover (TLC) in conjunction with tax specialists Qdos Consulting. A development of professional fee protection, TLC will protect individuals and companies against a tax investigation and will even compensate their tax liability if fined. Cover is subject to a preliminary tax health check.

John Mullin, managing director of Composite, said: “Professional fee protection products have previously been seen as a niche market and are more the preserve of accountants recommending it to their clients, rather than insurance brokers.

“This move by the Revenue is likely to bring this area of legal expenses protection into the mainstream insurance market, as more people perceive themselves and their businesses to be at risk of successful investigation.”

Composite is predicting that early reaction among business organisations, which have criticised the setting of a target, will bring tax liability into the public spotlight.

TLC covers professional costs incurred defending a tax investigation. Potential policyholders can qualify for cover following a review of their accounts and tax returns. Depending on the size of business or income, the process may also include a “tax health check”. This can be prepared in conjunction with the client's accountant by reviewing their audit report, or similar verification.

Once accepted for cover, the policyholder can select the areas of cover including tax, VAT and PAYE, as well as one-off transactions such as the VAT treatment of property transactions.

Mullin added: “As well as protecting their client's tax liability, TLC removes the potential of costly litigation against accountants or other advisers if an unexpected tax bill arises. This is expected to make the provision of TLC to their clients extremely attractive to accountants, financial advisers, the legal profession and other professional advisers.”