In rare cases, you may find yourself on the receiving end of bad advice from your accountant, or even outright negligence. Perhaps your accountant filed the wrong information on your tax return or caused you to miss a payment. Even in such circumstances, as the business owner you are still legally responsible for the accuracy of your accounts and your self-assessment.
Whether you are a sole trader or the director of your own company, negligent advice on tax issues can put you and your business in a very compromising position with HMRC, and you may suffer substantial financial losses.
If you find yourself in such an unfortunate situation, your company will be held accountable by HMRC for any fees, interest, penalties or taxes that are due as a result of this mistake. If you fail to make the required payments, HMRC could put your company out of business.
What should I do?
Once you know a mistake has been made, you should act quickly. Contact HMRC immediately and explain the situation. In general they are understanding and will want to help you right a genuine mistake. They may be able to grant you an extended deadline or help you work out a special repayment plan if you can’t afford to pay what you owe in one lump sum.
Secondly, consider the mistake itself. If your accountant has admitted to making the mistake then you can file a professional negligence claim against them to demand compensation for any additional fees and interest you incurred with HMRC as a result. However, ensure that you have already paid the extra fees that HMRC requires, as otherwise you cannot claim them as lost funds as you technically will not have lost them yet.
As well as this, check whether or not your accountant has professional indemnity (PI) insurance. If they don’t, you can still bring a claim against them but your chances actually collecting compensation will be much lower.
Finally, hire a new accountant to conduct a thorough assessment of your accounts so you know where your business stands and you can get things moving again.
Making a professional negligence claim
It is important to note that there are time limits if you want to bring a professional negligence claim against your accountant. You have six years from the date of the negligent act to begin court proceedings for a professional negligence claim, and just three years from the date of knowledge of the negligent act.
The date of knowledge is ascertained as the date whereby a reasonable person should have realised or become aware that there was a risk that negligence had occurred.
After 15 years, you can no longer bring a claim of professional negligence, regardless of the date of knowledge. If you do not bring your claim on time it will usually be lost forever, and you will have no way of getting the compensation you are owed for your accountant’s mistake.
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