Tax claims arrive years late and to the wrong question. The advice was given in 2019. HMRC opens an enquiry in 2024. The claim against the adviser lands in 2026. By then the file is cold, the partner has retired, the policy is two renewals removed, and the only thing the client remembers is that the scheme was supposed to work.
Of all the professional classes, tax advice has the longest and least predictable tail. The damage from poor advice often does not manifest until HMRC notices, and HMRC has its own discovery powers that can reach back well beyond the standard six-year limitation period in tort. The professional indemnity policy that responds is the one in force when the claim is made, not the one in force when the advice was given — and the difference between those two policies can be decisive. This guide sets out how tax adviser claims actually behave, where R&D tax credits, EIS, SDLT planning and partnership structuring sit on the risk map, and what to do about it at renewal.
The tax adviser claims book divides into a few clear patterns. The first is the failed scheme: the adviser recommended a structure — a film partnership, an EBT, a particular SDLT route, an R&D claim — that HMRC subsequently challenges and disallows. The client recovers tax, interest and penalties from HMRC and seeks the same plus consequential losses from the adviser. The second is the missed deadline or filing error: a corporation tax return filed late, a CGT return missed, an election not made within the statutory window. The third is the wrong basis advice: an answer given on a transaction structure that, with the benefit of hindsight, was incorrect on the facts as they were known at the time. The fourth is enquiry cost and conduct: the adviser handles the HMRC enquiry, the client says it was handled badly, and the dispute is about defence costs and outcome.
R&D tax credit work has become the highest-frequency current exposure. The combination of intense HMRC scrutiny since 2023, a wave of compliance check letters, and the volume of work pushed through the SME and RDEC regimes during the relevant qualifying years has produced a notification surge. Underwriters now treat R&D advisory work as a separate underwriting question and many specialist tax PI markets have either restricted R&D cover, increased excesses or excluded the work entirely for firms whose practice is materially R&D-led.
The long tail is driven by HMRC’s discovery powers and by the limitation framework. A negligence claim in contract or tort against a tax adviser is in principle subject to the six-year limitation period in sections 2 and 5 of the Limitation Act 1980. But where damage is latent — and tax loss is the classic latent damage — section 14A extends the period to three years from the date of knowledge, subject to a fifteen-year longstop in section 14B. In practice, the limitation clock for a tax claim often restarts on the date HMRC issues a discovery assessment or opens an enquiry, because that is the date the client knew it had suffered damage.
Tax adviser PI is written claims-made on a wording calibrated for the class. The policy responds to claims first made or notified during the period of insurance arising from professional services. “Professional services” should be drafted to cover the firm’s full scope — tax compliance, tax advisory, R&D claims, employer tax compliance, VAT, indirect taxes, structuring, dispute work — and the schedule should not silently exclude any of them.
Two extensions matter particularly. The first is cover for HMRC enquiry defence costs incurred on behalf of clients, where the firm has agreed to bear the cost. Some policies pick this up under the professional services definition; others treat it as a separate sub-limit or exclude it. The second is regulatory or professional body costs — defending complaints to the Chartered Institute of Taxation, Association of Taxation Technicians, ICAEW or ACCA. Tax advisers are not directly statutorily regulated in the way solicitors are, but CIOT and ATT impose professional conduct standards and PI requirements on members in practice, and ICAEW and ACCA members holding practising certificates are subject to their respective regulators’ PI rules.
Section 3 of the Insurance Act 2015 places the duty of fair presentation on the insured. For tax practices this is materially more onerous than it sounds. Underwriters expect a fair presentation of the practice’s exposure to known risk areas — R&D claims volumes, scheme exposure history, historic involvement in disclosed tax avoidance schemes, partnership advisory work, complex international tax — and a non-disclosure on any of these can give rise to remedies under section 8 ranging from proportionate reduction of claim to avoidance of the policy. Section 11 protects the insured where the breach of a term is not relevant to the loss, but it is not a workaround for poor disclosure.
The R&D-specific underwriting question is now standard on most tax PI proposals. Underwriters will ask for fee income from R&D claims, average claim size, HMRC enquiry rate, technical sign-off process, and whether the firm offered any form of contingent fee. Firms that operated a “no win no fee” R&D model will find the market materially narrower than it was three years ago.
Consider a typical mid-sized tax advisory practice — eight partners and around 40 staff, fee income £6.5m, of which roughly £1.5m is R&D claim work for SME clients. PI cover at £5m any one claim and £10m aggregate.
In 2025 HMRC opens enquiries across a cohort of 30 SME R&D claims the firm submitted between 2021 and 2023. The total tax credit at stake is approximately £3.4m. HMRC’s position is that a significant portion of the claimed activities did not meet the BEIS guidelines on R&D for tax purposes.
The firm notifies the cohort to its insurer as a circumstance. The insurer accepts notification and the policy in force at the date of notification responds. Defence costs to support clients through the enquiries — where the firm has contractually agreed to bear them — and damages payable to clients on a “tax recovered plus interest and penalties” basis are met within the limit, subject to a single excess of £50,000 because the policy aggregates related claims into one for excess purposes (and on the limit side, with significant impact on coverage).
Across two years, around £1.8m is paid in client losses and around £400,000 in defence costs. The firm survives. Its 2027 renewal sees R&D work specifically excluded by the incumbent insurer; the firm rebrokes onto a wording that covers R&D but at materially higher premium and excess.
Apex’s view: the firms that come through an R&D cohort enquiry intact are the ones that notify early, treat HMRC’s first compliance check letter as a circumstance, and have the difficult conversation with the client about the firm’s exposure before the client has the conversation with a litigation solicitor. The firms that come unstuck are those that hold the line on “we are confident the claims will succeed” through three or four enquiries and notify only when the first deemed determination arrives. By then the cohort has aggregated and the policy in force may not be the one that should have been on risk. We would rather notify early and have the insurer say it is not yet a circumstance than notify late and have the same insurer say it should have been notified the year before.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
Get a quote