Skip to Content
Skip to Main Menu

Are accountants liable for bad advice?

Are accountants liable for bad advice?

By hiring an accountant you are no doubt looking for someone to take the stress and hassle out of your finances so that you can concentrate on what you do best – running your business. However in rare cases something can go wrong. Whether your accountant misses a crucial filing deadline, provides bad advice or makes a mistake on your accounts this can lead to some serious consequences for your business. But who is liable, you or your accountant?

Your accountant is viewed as an ‘agent’ of your business

Even if the mistake has undoubtedly been made at the hands of your accountant, as a business owner or company director the liability still lies at your door as your accountant is only viewed as a ‘agent’ of your business. As the business owner or director it is your name that ultimately signs off any accounts and submissions, and therefore you are viewed as being responsible for the final approval and submission of these.

Many people question this stance, as the reason that they hired an accountant in the first place is because they do not have the specialist knowledge required to ensure that their finances are handled correctly in the first place. However HMRC is extremely firm in their position that it is still the business owner or company director that is held ultimately accountable.

Possible consequences of accountants’ negligence

There are a number of potential negative consequences to your accountant providing you with bad advice or making mistakes on your accounts, most of which will cost you money. Missing filing deadlines or submitting incorrect information is likely to lead to HMRC imposing monetary penalties on top of rectifying any amounts that you may have mistakenly underpaid, plus any interest owing.

Other forms of bad accountancy advice could include issues concerning; the incorrect formation of your company, pensions advice, investments, buying or selling a business, audits or due diligence mistakes 

What should you do?

As soon as you discover, or even have a suspicion, that your accountant has made a mistake or provided you with bad advice then you should immediately contact the relevant parties and explain the situation.

HMRC is usually quite understanding if they believe that a genuine mistake has been made which you as the company director were not aware of. If you contact them as soon as possible then they may be willing to arrange a Time To Pay arrangement which will either allow you defer your payment for an agreed amount of time, or more likely will allow you to pay what you owe in instalments, usually over 6 months. However it is important to remember that HMRC will not waive any penalties and interest charges incurred as a result of the error, you will still have to pay these.

Can you sue your accountant for negligence?

As part of their membership of their chosen accountancy regulatory body (ICAEW, ICAS or ACCA) accountants are required to hold Public Indemnity Insurance (PII). This is designed to provide compensation in the event of an accountant being negligent or providing bad advice. However there are a number of other factors that you should consider before investigating litigation.

Has the accountant admitted to making the mistake?

Even if it is just quick a line in an email admitting the mistake, then this is all the proof you need to take them to court and file for compensation for any additional fees, penalties or interest that has been incurred as a direct result of the accountants’ error.

Have you already paid everything that you owe, including any penalties etc?

If not then the court is unlikely to uphold your claim as you haven’t actually suffered a loss yet. Again many people view this as an unfair as they have to pay out extra money before then starting the process of claiming it back. However if you do not pay all that you owe to HMRC then they can start the process of gaining a winding up order to close down your business.

Does your accountant actually have Public Indemnity Insurance?

An important step is to check that your accountant’s PII is valid or that they have it at all, as without this it much less likely that you will be able to collect any compensation even if you do sue them.

Are you within the legal time frame?

If you wish to bring a professional negligence claim against your accountant then you must do this within 6 years of the date of the negligent act, or 3 years of the date of your knowledge of the act. After 15 years from the date of the actual act of negligence you can no longer bring a professional negligence claim, regardless of the date of your knowledge of the act.

How to minimise your risk in the future

If you have decided to part company with your accountant due to negligence or bad advice, then you should engage a new accountant as soon as possible and get them to perform a thorough audit or your business and your accounts. In this way any further errors or issues can be identified and remedial action be taken.

It is also prudent to work with your accountant to provide them with all of the information they need as soon as possible so that accounts can be submitted with plenty of time before the deadline, to both avoid late filing penalties and remedy any issues that may arise.

Whenever you are looking to appoint an accountant for your business then it is vital to ensure that they are fully regulated by, and members of, one of the 3 main accountancy bodies; ICAEW, ICAS or ACCA. This will ensure that their staff have passed their rigorous training standards and have committed to a series of continuing professional development to ensure that they are always up to date with relevant regulatory changes.

Handpicked Accountants can connect you with a number of exceptional and thoroughly vetted accountants in your area, who you know that you can trust. View our online listings or contact us to find out more.

David Tattersall
Speak to a Handpicked Expert today

Hi there - I'm David from Handpicked Accountants. If you need help finding the right accountant, simply give me a call. My expertise is in connecting business owners with the very best professional services and I'm on hand to assist you today.

Subscribe to the newsletter and receive news, advice and key insights in your inbox every month

Thank you for subscribing to our newsletter. ×

By clicking submit you will receive the Handpicked Accountant newsletter. All emails include an unsubscribe link. You may opt-out at any time. See Privacy Policy.