Richard Taylor explains some of the features of tax liability insurance
A tax liability insurance policy protects a taxpayer (or another party, e.g. one that is secondarily or jointly liable) against loss arising from a particular tax event. For example, a taxpayer may treat certain supplies as exempt for VAT purposes. However, a third party adviser might identify a risk that HMRC could challenge the supplies as standard-rated, such that the taxpayer should have registered for VAT and VAT is due to HMRC. In this scenario, a tax liability insurance policy could be sought to give the taxpayer comfort that, even where HMRC does challenge the VAT treatment of supplies, it will not suffer a loss.
The precise loss that can be covered by a tax liability insurance policy is flexible, but typically comprises: