A sole trader stands alone in an HMRC enquiry: there is no payroll department, no finance team, and the person answering HMRC’s questions is the same person trying to run the business. Tax investigation insurance pays your accountant to take that work on, covering the professional fees of defending a compliance check into your self assessment. It does not pay tax found due. For a sole trader the case for cover is mostly about time: an enquiry answered badly in stolen evenings costs more, in every sense, than one handled professionally.

Self-employment sits squarely in HMRC’s sights because the numbers are self-reported: turnover, expenses, drawings and mileage all rest on the trader’s own records. That is not suspicion, it is structure, and it is why enquiry letters land on sole traders who have done nothing wrong.

What an enquiry looks like from inside a one-person business

The letter asks for records: bank statements, invoices, receipts, the workings behind the expenses. Then come the questions, and each answer invites the next round. For a business of one, every hour spent on this is an hour not earning, and the temptation to answer quickly rather than carefully is exactly how narrow enquiries widen.

Making Tax Digital raises the stakes: from April 2026 sole traders and landlords with qualifying income over £50,000 keep digital records and file quarterly, with the threshold falling to £30,000 in 2027 and £20,000 in 2028. More filings mean more data for HMRC’s risk systems to read, and more moments for a mismatch to trigger a question.

What the cover does and does not do

It pays the accountant’s fees for handling the check: preparing responses, attending any meetings, corresponding with HMRC until closure. It does not pay tax, interest or penalties, and it cannot be bought once a check has already begun. Policies differ on which types of check are included, so the wording decides, always.

For many sole traders the route to cover is through their accountant’s fee protection scheme; buying directly is the alternative where no scheme exists.

The record-keeping dividend

The same discipline that shortens an enquiry also cheapens the premium risk: bank accounts kept separate from personal spending, invoices numbered, expenses evidenced, mileage logged at the time. An enquiry into a well-kept year closes in correspondence. An enquiry into a shoebox becomes a project.

Common questions

Do sole traders really get investigated?

Yes. Self-reported figures are inherently checkable, and HMRC risk-profiles self assessment returns. Some checks are effectively random; being selected is not an accusation.

What does the insurance actually pay for?

The professional fees of defending the check: your accountant’s time responding to HMRC. Not the tax, not interest, not penalties.

Can I buy it after HMRC writes to me?

No. Cover responds to checks that begin while the policy is in force. Once the letter has arrived, the risk has happened.

Does Making Tax Digital change my risk?

It changes the rhythm: quarterly digital filings from April 2026 for qualifying income over £50,000, then £30,000 from 2027 and £20,000 from 2028. More frequent data gives HMRC more to match against, which makes clean records matter more, not less.

Is this the same as legal expenses insurance?

They overlap but are not the same product. Fee protection is built around HMRC enquiries; legal expenses policies cover a broader range of disputes and sometimes include tax enquiry sections. Check what you already hold before buying twice.

Related guides

This page is general information for sole traders and the self-employed, not tax advice, and it does not describe the terms of any particular insurance policy.

Solar Insurance Services (Medway) Limited is registered in England and Wales, company number 05439438, and is authorised and regulated by the Financial Conduct Authority, firm reference number 459582.

Sources: HMRC guidance on tax compliance checks; HMRC guidance on Making Tax Digital for Income Tax thresholds and dates.