As the owner of a small business, whether it’s a sole proprietorship, a partnership or a private limited company, you put a lot of trust in the advice you are given by a number of professional advisors. Budgets are tight for small businesses, so when you go to the expense of hiring a third party, you rightly expect them to pull their weight.
Unfortunately, in any line of business, mistakes can be made. There are rare cases when a third party advisor, such as a company accountant, has filed incorrect information or missed a deadline that results in payment penalties or additional fees.
Can Accountants be held Liable for bad Advice
The answer is yes, proiding you can legally prove the accountant’s negligence. Where your accountant has provided or negligent advice which has resulted in financial loss for you or your company, your may have a claim that could be made in court.
Who is responsible for mistakes?
Final responsibility for the accurate and timely submission of tax returns and other filings lies with your company and its directors, not the accountant. The duty to file the annual accounts at Companies House falls on the directors themselves. As part of your duties as a director of the company, you are responsible for ensuring your company’s compliance with all of the relevant statutory requirements. While it might have been the fault of the accountant that a mistake was made with your books, it is ultimately your signature as an officer of the company that will be on the relevant forms.
The accountant’s role as an ‘agent’ of the business
It is HMRC’s view that an independent accountant is hired as an ‘agent’ of a business, and is merely carrying out work on the company’s behalf. The company, not the accountant, is normally liable to HMRC for penalties and interest caused by the accountant’s mistake. The company may avoid a penalty for a late return or late payment if it shows HMRC, or the tribunal on appeal, that it had a reasonable excuse. Relying on an accountant is not a reasonable excuse unless the company took reasonable care to avoid the failure. Reasonable care includes giving the accountant correct information and checking the work. For a penalty for an inaccurate return, reasonable care is the test. Interest on late-paid tax is still due.
Can you sue your accountant for negligence?
You may be able to sue your accountant for negligence, or for breach of contract, if their work fell below the standard of a reasonably competent accountant and this caused you financial loss. An admission of fault, payment to HMRC and insurance are not legal requirements. This is how each one fits in:
- If the accountant has admitted fault – An admission helps, but you still need to show the mistake fell below the standard of a reasonably competent accountant, that it caused your loss, and how much you lost.
- Whether you have paid HMRC – You do not have to pay HMRC first. Penalties and extra fees you have become liable for because of the accountant’s error can be a loss you claim, whether or not you have paid them yet. Interest is harder to recover, because you had the use of the money in the meantime. Time limits apply, usually six years in England and Wales (five years in Scotland), so do not wait until HMRC is paid before taking advice.
- If your accountant is insured – You can sue your accountant irrespective of whether they have professional indemnity insurance, but if they are not covered, the likelihood of receiving compensation is much lower.
So what should you do?
If your accountant makes a mistake, the first step you should take is to contact HMRC immediately and notify them of the problem. HMRC may be able to help by offering an extended deadline or coming up with a payment plan if you cannot pay everything you owe in a single lump sum.
The next step is to consider how you will be compensated for the accountant’s negligence. If the accountant admits their fault, you make your claim against the accountant and their professional indemnity insurer will usually meet it. However, if they are unwilling to pass the claim to their insurer, or they do not have professional indemnity cover, then you will need to think seriously about taking the accountant to court.
How can we help?
If you’re suffering financially as a result of an accountant’s mistake, we can help you pick up the pieces and return your business to financial health. For more information, please get in touch with our team today.