Updated: 22nd March 2020
Hiring an accountant to complete your company accounts and tax returns not only frees up time, it negates the need to employ high-level finance staff in-house. Most of the time this arrangement will work well, but sometimes errors are inadvertently made that result in financial penalties being imposed on your company by HMRC.
So what happens if your accountant makes a mistake with your books or tax liabilities? What recourse do you have to gain compensation in these cases, and how do you move forward on a firmer footing if your accountant is found to have been negligent in their work?
Final responsibility and liability for the accuracy and timeliness of tax returns and other document filing rests with your company. Part of your duties in taking on the role of director is to ensure the company’s compliance with all statutory requirements, and although the accountant may clearly be at fault in your eyes, it is the director’s signature as an officer of that company which completes the process prior to submission.
An independent accountant is hired as an agent of a business, meaning that they carry out work on the company’s behalf. HMRC takes the view that, although the accountant has made the error, it is the company that is liable for any fines or penalties arising from the situation.
The problem experienced by many directors is lack of knowledge about financial procedures, which is often why an accountant is hired in the first place. It may seem unfair, therefore, to place liability at the door of directors – even more so when heavy fines and penalties are issued by HMRC if returns are inaccurate or late.
Some of the issues are mentioned below. It is worth remembering that you could mitigate the risks of error by providing the requested information quickly, thus allowing your accountant to file the returns well in advance of deadlines.
Some businesses submit their financial paperwork with days to spare before a tax return is due. This not only puts great pressure on an accountant to avoid late submission penalties, it can easily lead to errors and subsequent fines for inaccurate submissions.
If your accountant has been blatantly unprofessional or has little practical experience of dealing with limited company accounts, you may choose to look for a replacement. You could also make a complaint against them via their professional accountancy body.
Going down this route would mean that a newly-appointed accountant could scrutinise previous years’ accounts for further errors, and bring your financial obligations as a company back into line. This is assuming that the original accountant has not simply made an uncharacteristic error.
HMRC are quick to deal with late payers and companies that submit inaccurate information. Monetary penalties are imposed swiftly, adding to a company’s financial burden at a time when the cash flow outlook may not be positive.
In cases such as this you can enter negotiations with HMRC, taking responsibility for the error, but also explaining that it was your agent who made the mistake and requesting more time to pay.
Time to Pay arrangements are generally offered to those companies temporarily unable to pay their tax liabilities, and can provide the extra time needed to recover from a poor cash situation.
If the error is a serious one and has affected your company’s ability to pay other suppliers, you may be able to take your accountant to court if they have admitted their mistake.
If the accountant has no professional indemnity insurance, the chances of you receiving compensation are reduced, however, and it is worth remembering that to reclaim the extra fees and interest charged by HMRC you need to have already paid them.
Begbies Traynor can advise on your legal position should your accountant have made errors with your accounts. We are the UK’s market leader for corporate recovery and have licensed Insolvency Practitioners across the UK.