Although business owners and company directors are ultimately responsible for ensuring their compliance with HMRC, it is natural to want to seek compensation if they have suffered a material loss due to an accountant’s mistake.

Professional input to a business can be costly, and there is usually high expectation on the part of clients that their accountant’s advice and general services will be reliable. So what type of accountancy error could potentially lead to a claim for professional negligence?

Possible accountancy mistakes

Accounting errors that might result in a claim for professional negligence could include, but are not limited to:

• Failing to meet filing and submission deadlines
• Not advising a client about the changes in tax legislation
• Failing to warn their client of potential risks connected with a tax mitigation scheme
• Submitting materially inaccurate statutory accounts
• Failing to identify and/or report instances of fraud
• Not informing a client about their VAT obligations, such as when they should start paying VAT

These types of professional error can result in significant loss for clients. HMRC impose considerable fines and penalties for late filing and submission, for example, and for failing to register for VAT when the threshold has been met.

Considerations when making a claim

A number of factors should be considered when making a professional negligence claim against an accountant, including:

• Whether or not they hold professional indemnity insurance: even if a claim is successful, the accountant may not be able to pay a court judgment if they are not insured
• If the accountant has admitted their error: this provides the proof needed to make a claim in court
• Whether the business is completely up-to-date with its HMRC liabilities: if the penalties and fines resulting from the error have not been paid, they cannot be reclaimed

Making a claim for professional negligence can be a complex and time-consuming process, so what factors need to be considered?

How a claim for professional negligence is made

If the accountant has admitted their mistake and they hold professional indemnity insurance, it may be a simple case of claiming against their insurance company. In some instances, however, an accountant may be unwilling to file a claim with their insurers, or simply deny having made an error. In this case, taking the accountant to court may be the only way to obtain compensation.

If the accountant is no longer practicing, or has gone out of business, it could still be possible to make a claim for professional negligence. Consideration should also be given to the time limit for professional negligence claims, which is generally six years from the date of negligence.

Written by David Tattersall from Handpicked Accountants – a website which helps business owners and company directors find a reputable and reliable accountant in their local area.