Is tax investigation insurance
tax deductible?

No, in most cases. HMRC's manual says premiums for fee protection insurance are not allowable if the policy covers accountancy fees for enquiries that find careless or deliberate inaccuracies, and the premium cannot be apportioned (HMRC BIM46452). Most policies include that cover, so the whole premium is disallowed, even if you never claim.

Many accountants sell tax investigation or fee protection insurance with their annual service, and many clients assume it is deductible like other business insurance. HMRC's view is that it usually is not, because of what it covers: fees in enquiries that find careless or deliberate errors, which would not be allowable if you paid them directly.

Is tax investigation insurance tax deductible?

The HMRC rule

Professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not. The rule comes from HMRC Business Income Manual BIM46452: fee protection insurance, HMRC Business Income Manual BIM46450: taxation, accounts and negotiations.

HMRC's manual says premiums to insure against additional professional costs are allowable only if those costs would themselves have been allowable. Where a fee protection policy covers accountancy fees for negotiating additional liabilities from careless or deliberate inaccuracies, the premiums are not allowable, and cannot be apportioned. The cost remains disallowable even if no claim is made (BIM46452).

When you can claim it

• A policy that only covers fees that would be allowable, such as enquiries closed with no additional tax.
• Accountancy fees for an enquiry that finds nothing wrong, if paid directly.
• Fees for enquiries where any error arose despite reasonable care.
• VAT and PAYE compliance visit fees, if the policy covers only allowable costs.

When you cannot

• Premiums for policies that cover enquiries finding careless or deliberate errors.
• An apportioned part of a premium.
• Fees for enquiries that find careless or deliberate errors, paid directly.
• Penalties and interest arising from an enquiry.

What to claim instead

Check the policy wording. If it covers any costs of enquiries resulting in additional liabilities from careless or deliberate inaccuracies, treat the premium as disallowable. If it genuinely excludes those, the premium may be allowable. Either way, the insurance may still be worth having for the cover itself.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For tax investigation insurance, the deciding rule is accountants, solicitors and other professionals: professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not.

Worked example: a fee protection add-on

A sole trader pays her accountant £600 for accounts and her return, plus £120 for the accountant's fee protection service, which covers the fees of any HMRC enquiry. The £600 is allowable in the normal way. The £120 is not, because the policy covers enquiries that could find careless errors, and it cannot be split.

Why the premium is disallowed

An insurance premium takes the character of what it insures. If an enquiry finds careless or deliberate errors, the extra accountancy fees for it are not allowable, because they arise from putting right the taxpayer's own failure. A policy that pays such fees therefore insures a non-allowable cost, and because no part of the premium can be identified as wholly for allowable cover, all of it is disallowed.

When enquiry fees are allowable

If you pay an accountant directly for an HMRC enquiry that closes with no additional tax, or where an error was made despite reasonable care, those fees are generally allowable. It is the insurance premium that is disallowed as a whole, not all enquiry-related costs.

Policies bundled with accountancy fees

Where your accountant includes fee protection in a single annual fee, ask for the insurance part to be shown separately so you can exclude it. Claiming the whole bundled fee risks claiming the disallowable premium.

Is the insurance worth having?

The tax treatment is not a reason to avoid fee protection. An HMRC enquiry can generate significant accountancy fees even when nothing is wrong, and a policy can cover those. Just treat the premium as a personal cost rather than a business expense.

Landlords

The same principle applies to landlords: fee protection for the letting business is not allowable where it covers enquiries finding careless or deliberate errors. Normal accountancy fees for the letting business remain allowable.

Where it goes

If your accounts include the premium, put it in box 28 and the same amount in the disallowable column, box 43, of the full self-employment pages. Otherwise, leave it out of the expenses altogether.

If you are a landlord

Landlords follow the same rule: fee protection for the letting business is disallowed where it covers enquiries that find careless or deliberate errors (HMRC BIM46452).

Where it goes on your return and in MTD

It is not an allowable expense, so it does not reduce your profit. Where your bookkeeping shows it as a business payment, record it as drawings, or include it and add it back as a disallowable expense on the full self-employment pages.

A landlord cannot deduct it from rental income either, so it stays out of the property expense boxes.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the policy wording, which decides whether the premium is allowable, and the invoice showing it separately from accountancy fees.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Claiming a fee protection premium as business insurance.
• Apportioning the premium.
• Claiming a bundled accountancy fee that includes fee protection.

Related expenses

This item sits in the accountancy, legal and other professional fees category, alongside accountancy fees, legal fees and professional indemnity insurance. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.