Client set to learn an expensive lesson
This month, a meeting of one of the Tax Discussion Groups in Croydon and South East London heard about an accountant’s concerns over his potential liability over an HMRC tax enquiry, but his fears should prove unfounded.
The accountant involved explained that he had been engaged for many years to handle the company accounts and tax compliance for a small husband- and wife-owned business. The business was owned equally by them, but he had no engagement for their personal tax affairs. Recently, the husband had explained that HMRC had begun a tax enquiry into his wife’s personal tax.
The company’s accounts prepared by the accountant had annual dividends of roughly £50,000 per year, which were monies drawn from the company. When asked, the husband explained that his wife was in receipt of other taxable income amounting to around £30,000 to £40,000 per year, but she had not prepared nor filed any tax returns.
The accountant was concerned that the company engagement and the inclusion of the dividends in the company accounts amounted to a de facto engagement to advise on the need for the husband and wife to file annual personal tax returns. He was also concerned regarding whether he needed to disclose the potential claim when renewing his professional indemnity insurance.
There was a lengthy discussion regarding professional negligence cases, and whether there was a duty of care regarding the personal tax compliance which could be inferred from his company engagement. While a claim could be brought, such a claim was unlikely to be successful on the facts as presented.
The accountant had offered to handle their personal tax affairs when forming the limited company, but they had declined his offer. It was also felt that there didn’t need to be any disclosure to the professional indemnity insurance company, as there was no client complaint that had been made.
In reality his client was about to learn an expensive lesson.
Even if a claim was brought it would be limited to the costs of dealing with the claim, the tax enquiry, interest and penalties.
Finally, it was felt that he should consider contacting the ICAEW Practice Helpline on 01908 248250 to provide additional assurance regarding this matter and that he could also speak to a professional negligence lawyer if he still had concerns.
Each month (with the exception of July and August) the Tax Discussion Groups in Croydon & South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend and normally cover over a dozen tax issues raised by those attending.
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