Fee Protection and Professional Indemnity

Q: What does each policy protect?

Fee protection responds to an HMRC check into the client. It pays the cost of representation, so the client gets a proper defence without an unexpected bill. It never pays tax, interest or penalties. Professional indemnity responds to a claim against the practice. It pays compensation and defence costs if the practice is found to have breached its duty of care, subject to the policy terms. Put simply, fee protection is about HMRC questioning the client's tax. PI is about the client questioning the accountant's work.

Q: How can one HMRC enquiry involve both?

Illustration only. HMRC opens an aspect enquiry into a client's return. The client is a scheme member, so the practice's time in dealing with HMRC is paid under the fee protection cover. During the enquiry it emerges that a relief was claimed wrongly because of a mistake in the practice's own work. HMRC charges the extra tax with interest, and possibly a penalty if the inaccuracy was careless. Fee protection does not pay any of that. If the client then says the practice should compensate them for the loss, that is a potential PI claim. Inaccuracy penalties under Schedule 24 to the Finance Act 2007 can reach 30% of the extra tax for a careless inaccuracy, reduced for disclosure, so the sums involved can be significant even when the underlying error is small.

Q: What should a practice do when an enquiry reveals its own error?

Notify your PI insurer promptly. PI policies usually require you to notify circumstances that might give rise to a claim as soon as you become aware of them. Late notification can put cover at risk. Do not admit liability or offer compensation without your PI insurer's agreement, as most policies require. Consider whether you can still act. Defending the client while your own work is in question can raise a conflict of interest. Your professional body's ethical code and the Professional Conduct in Relation to Taxation guidance apply. Keep the fee protection claim running correctly. Continue to follow the fee protection insurer's conditions for the enquiry work itself.

Fee protection and professional indemnity insurance cover different people against different things. Fee protection pays the client’s professional fees when HMRC opens a check. Professional indemnity (PI) protects the accountancy practice when a client claims that the practice’s negligent advice or work caused them a loss. One HMRC enquiry can involve both, which is why most practices need to understand where one stops and the other starts.

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What does each policy protect?

Fee protection responds to an HMRC check into the client. It pays the cost of representation, so the client gets a proper defence without an unexpected bill. It never pays tax, interest or penalties.
Professional indemnity responds to a claim against the practice. It pays compensation and defence costs if the practice is found to have breached its duty of care, subject to the policy terms.

Put simply, fee protection is about HMRC questioning the client’s tax. PI is about the client questioning the accountant’s work.

How can one HMRC enquiry involve both?

Illustration only. HMRC opens an aspect enquiry into a client’s return. The client is a scheme member, so the practice’s time in dealing with HMRC is paid under the fee protection cover. During the enquiry it emerges that a relief was claimed wrongly because of a mistake in the practice’s own work. HMRC charges the extra tax with interest, and possibly a penalty if the inaccuracy was careless. Fee protection does not pay any of that. If the client then says the practice should compensate them for the loss, that is a potential PI claim.

Inaccuracy penalties under Schedule 24 to the Finance Act 2007 can reach 30% of the extra tax for a careless inaccuracy, reduced for disclosure, so the sums involved can be significant even when the underlying error is small.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

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What should a practice do when an enquiry reveals its own error?

Notify your PI insurer promptly. PI policies usually require you to notify circumstances that might give rise to a claim as soon as you become aware of them. Late notification can put cover at risk.
Do not admit liability or offer compensation without your PI insurer’s agreement, as most policies require.
Consider whether you can still act. Defending the client while your own work is in question can raise a conflict of interest. Your professional body’s ethical code and the Professional Conduct in Relation to Taxation guidance apply.
Keep the fee protection claim running correctly. Continue to follow the fee protection insurer’s conditions for the enquiry work itself.

Does running a fee protection scheme affect your PI cover?

It can. If your practice arranges insurance for clients, that is insurance distribution, and your PI policy should cover that activity. Under ICAEW’s licensing rules for exempt professional firms, a licensed firm’s PI must also meet the minimum levels set for insurance distribution. Check with your PI broker that your policy reflects the scheme work you do. Our guide to running a fee protection scheme covers the regulatory routes.

What PI cover does an accountancy practice need?

ICAEW members in public practice must hold PI that meets ICAEW’s minimum terms, including a minimum limit of indemnity. Other professional bodies have their own requirements. Our guide to professional indemnity insurance for accountants explains the rules and what to look for in a policy.

Can fee protection reduce PI claims?

Indirectly, it can help. Without fee protection, a client facing a large bill for enquiry work may resist paying, or may argue that the enquiry only happened because of something the practice did. With the fees covered, the conversation is about the facts of the enquiry rather than who pays for the defence. It does not change the practice’s legal position if its work was negligent.

Where can I find out more?

Read fee protection schemes for accountants and explaining fee protection to clients. Solar Protect builds fee protection schemes for accountancy and bookkeeping practices: see how our accountant schemes work. For a business that wants its own policy, read about our tax investigation insurance or get a quote.

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 7 October 2026. This guide is general information, not legal, regulatory or insurance advice. Always check your own policy wordings.