What is a Director’s Responsibility for Accountancy Errors?
There’s nothing unusual about the director or owner of a limited company deciding to hire an accountant to help meet the company’s tax and accounting responsibilities. But what happens when things go wrong? What is the director’s responsibility for accountancy errors?
There are only so many hours in the day, and when you have a business to run it is often easier to hand over the reigns to a financial specialist. Not only will they free up your time to focus on the day-to-day running of the business, but they will also negate the need to employ expensive in-house finance staff. In theory, the relationship is a match made in heaven.
Unfortunately, life doesn’t always go so smoothly. There may be a time when your accountant makes a mistake that results in fines or penalties being imposed on your business by HMRC. But, if a professional adviser makes an error while working for your company, are you, as the company owner/director, ultimately responsible for their mistake?
Accountants are ‘Agents’ of the Company
The responsibility and liability for the accuracy and timeliness of your tax submissions rests with your company. An important part of your duties as the director is to ensure the company meets all of its statutory requirements. Although it might be negligence on the accountant’s behalf that causes a mistake, it is the company director’s signature that’ll appear on the tax submission. That means, in the eyes of HMRC, the responsibility is yours.
Any professional you hire to carry out work on behalf of the business is seen as an ‘agent of the business’. The company is liable for any penalties that arise from the work of such an agent. The trouble is that many company directors are simply not familiar with the financial procedures for limited companies. In many cases, this means agents do not receive the forms they need to complete tax submissions in good time.
What are the Likely Causes of Accounting Errors?
Some businesses wait until just a few days before tax deadlines to send the relevant financial paperwork to their accountant. In this case, a lot of pressure is put on the accountant to work quickly to get the return in on time. This extra pressure to avoid late submission penalties increases the likelihood of mistakes being made and subsequent fines for inaccurate submissions.
Incorrect VAT calculations can lead to a compliance team visit from HMRC which can have serious consequences for you and your business. We have had many cases were companies in their first year should have registered for VAT but did not. Either case can lead to large unexpected tax debts and company insolvency.
HMRC are quick to deal with companies that make mistakes or late submissions, with penalties and fines adding to the financial burden of companies already struggling with cash-flow. In this case, if you explain the error was made by a company agent and take full responsibly, HMRC will usually be willing to enter into negotiations to give you more Time to Pay.
Will you have any Legal Recourse Against your Accountant for their Mistakes?
So what happens if your accountant makes a mistake that ends up costing you money? If the error they have made is particularly serious and impacts on your company’s ability to pay its suppliers, you may be able to take the accountant to court for professional negligence. Before then, there are formal complaints procedures available via the Association of Certified Chartered Accountants (ACCA) and the Institute of Chartered Accountants in England and Wales (ICAEW).
Accountants and financial advisers cannot legitimately operate unless they have a sufficient level of professional indemnity cover. This is designed to protect an accountant’s clients against a financial loss that results from a mistake made in the course of their work.
If the accountant does not have professional indemnity insurance in place, the likelihood that you will be able to claim compensation is reduced. For this reason, it is essential you check accountants are covered before you choose to work with them. It’s also worth considering that extra fees and interest charged by HMRC can only be reclaimed once they have been paid, so in the first instance, this money will need to be paid by your business.
Has the Accountant Accepted Liability?
You’re also much more likely to receive compensation if the accountant has admitted to making the mistake. If they have, you’ll have all the proof you need to file a claim against them in court and demand compensation for additional interest or fees incurred.
Reducing the Risks in the Future
As a company director, it is essential you carry out due diligence on any professional advisers who will operate on behalf of your company. Make sure any accountants have experience working with limited companies and are registered with the relevant professional bodies. If they do make a mistake, it is these professional accounting bodies you’ll need to complain to.
In our professional lives, all of us make mistakes at one time or another. If an accountant makes an uncharacteristic mistake, then depending on its severity it might be something you are willing to forgive. However, if a new accountant makes a mistake that leads to fines and penalties from HMRC, you are well within your rights to take the matter to court.