An Accountant’s Liability for Bad Advice

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.  

Clearly, as the error was made the accountant, you would expect the liability for the error to rest with them, but where exactly do you stand if this situation were to arise?

Who is responsible for mistakes?

Final responsibility for the accurate and timely submission of tax returns and any other documents that need to be filed lies with your company. 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. Ultimately, the responsibly for that work is the company’s, so even if the accountant makes a mistake, it is the company that is liable for any fines or additional fees that arise.  

Can you sue your accountant for negligence?

You may be able to sue your accountant for negligence but only in the following circumstances:

  • If the accountant has admitted fault – If your accountant has admitted to making the mistake that is all the proof you need to file a claim in court for compensation for the additional fees or interest you have incurred.
  • If you have paid HMRC everything you owe – A claim is only likely to be successful in court if you have already paid HMRC all the money you owe them, including any penalties, fees and interest. If you have not paid the funds to HMRC, then technically there is no loss to pay for.
  • 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 then it should be a simple case of claiming against their insurance to cover the cost of the mistake. However, if they are unwilling to file a claim with 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.

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