Am I personally liable if my accountant makes a mistake with my tax return?
Hiring an accountant to take care of your financial and tax responsibilities is something many company directors choose to do. You trust your accountant to keep things quietly ticking away in the background, confident in their ability to keep your business compliant with its legal responsibilities. While one would hope that your accountant would strive to do the best for you and your business, occasionally mistakes do happen.
A huge amount of trust is placed in the accountant employed, so it can be particularly unsettling when things go wrong. While your instinct may be to apportion the blame to the accountant, this may not be the way HMRC views the matter. As the company director, the buck stops with you. An accountant is employed merely as an ‘agent’ of the business to do a particular job; the ultimate responsibility to ensure this job is done correctly lies with the company. This means that if wrong information has been filed, or deadlines have been missed, it is you as company director, and not your accountant, who is liable for these mistakes. This can seem particularly unfair as often the very reason a director employs an accountant is because they have very little knowledge of the financial side of their business.
Depending on the severity of the mistake made, you could be faced with a substantial bill or fine from HMRC. Unfortunately this falls squarely at your door; you cannot simply ignore these charges and expect your accountant to foot the bill. Your number one priority should to make this payment as soon as you can, as failure to pay what is due can have serious ramifications for your business.
Your best course of action is to contact HMRC and explain the situation; after all this is a genuine error and not a deliberate attempt on your part to avoid paying tax. HMRC will often grant you additional time to pay the amount due or even set up a payment plan for you so you can spread the cost if you are unable to settle the bill straightaway.
If the error has left you out of pocket it is only natural that you want to be compensated for it. It may be possible for you to take action against your accountant and claim on their Professional Indemnity Insurance if they have this in place. If your accountant does not have insurance, you can still take legal action, although the chances of you receiving compensation are severely reduced. It is important to note that you should only go down this route once you have paid the outstanding amount required by HMRC as it is not possible for you to sue your accountant for loss of funds if you have not technically lost anything.
If you do find yourself in this situation, it is advisable to seek a second opinion from another accountant who can go back and audit your accounts for the last few years. This can help to flag up any other problems which may be lurking in your company accounts. Depending on the scale of the error made, you may choose to hire another accountant on a permanent basis. When looking for a new accountant, you should ensure they have qualified through one of the main accountancy bodies such as CIMA, ICAEW or ICAS or ACCA. This ensures they have passed a series of stringent exams and have the necessary skills to look after your business’ finances going forward.