Accountant cost us a lot of money - any comeback?

Nerris

After a couple of unsatisfactory years with an accountant (tax specialist apparently!) we have recently changed over to a chartered accountant.

On doing my husbands tax return based on the previous accountants information our new accountant has dropped the bombshell (literally yesterday) that the previous accountants have done an appalling job in tax planning for my husbands business. It looks as though it could cost us a lot of money. He is consulting a tax specialist tomorrow, so we are waiting for the bad news.

Up until October my husband was a sole trader and earnt a profit of approx £43k for the past two years.
He is now a Ltd company.

My question is does anyone know the potential financial damage this could mean and also would there be any comeback to our previous accountant?

I appreciate that it's not an easy thing to speculate on, but I'm so angry about it as they weren't great with day to day dealings and this has just finished me off.:(

Thank you.

heretolearn_2

On a profit of £42k I don't honestly see a lot of scope for full on 'tax planning' beyond ensuring he didn't stray into 40% bracket and that he was claiming all relevant allowances. I find it hard to see what you would need to get a 'tax specialist' involved in - are you being charged a fee for this consultation?

Of course if the actual accounts were incorrect so it was showing more profit than was the case then your husband would have paid too much tax...but that's not a 'tax planning' issue.

I'm getting a funny vibe about your new accountant winding you up like this, there isn't the scope here to have done a lot, and any amounts would only have been comparatively small - different accountants will always come up with slightly different results for you but I'd be asking them to explain to you exactly what they would have done and how much difference it would have made - if they were not charging a fee for this of course.

Is it that your new accountant has advised him to turn Ltd for tax purposes? It's true that CAN result in some tax savings, but the effect is less than it used to be, and it also involves you in additional costs as your reporting/accounting legal requirements are higher, there's a loss of privacy, and we wouldn't as a matter of course recommend it at that income level. we'd let you know the pros and cons, and I've got to say probably 9 out of 10 clients in that income bracket choose to stay as sole traders.

What could 'cost you a lot of money'? Do you think you've lost a lot of money in tax paid unneccesarily, or is the new accountant going to be charging you a lot of money for their tax planning?

Nerris

Hi, Thanks for your reply.

The chartered accountant is used by my family for their business and he is a trusted accountant for many years so I would trust his judgement entirely. We are not being charged for the tax specialist.

I think the issue he had really was more to do with what they haven't done, rather than what they have. They've produced my husbands accounts for the last 3 years with no mention of when/how much he will need to pay in tax. I think our new accountant is more concerned with us having a huge hit all at once and just generally not being advised properly of how we could have allocated things to save money in the long run.

My husband queried the tax situation some time ago and they were vague and pretty much fobbed him off with 'well you will get a big hit at some point'. Which would have been fair enough had they informed us more of when/how this was going to happen. We ended up having to deal with a clerk rather than one of the main accountants and I always got the impression they couldn't really be bothered to deal with my husbands accounts as their main client base was rich landowners.

Phew, sorry for ranting a bit.

We decided to go Ltd ourselves for various reasons.

somethingcorporate

Did you pay any tax on your husbands income for the past 2 years?

runninglea

Has your previous accountant not produced sole trader accounts and produced self assessment tax returns which need to be filed every year bu 31 Jan?

If they havent done this then yes they havent done their job but your husband would know that these need to be filed.

As for going ltd then yes you could have done this a few years ago so your husband could take dividends and a salary of about 6K per annum. This saves on NI contributions etc

Nerris

Thanks for your responses.

They have produced self assessment tax returns and actual accounts each year although we've had no larger sums to pay, which has worried us somewhat and why my husband queried it last year. It just seemed strange to us and I'm not entirely sure what this means?

I will know more when I hear back from the new accountant, but I just don't understand it all, it's quite confusing to me.

I also agree re: dividends, and this will be something we will do.

Mistral001

A piece of general advice here, which I hope you do not mind as the OP asked for fairly specific advice on whether there was any comeback with the past accountant.

You need to get involved in the detail yourself. Keep an exercise book or hardback notebook (not sheets of paper in other words) when speaking to the new accountant and note down as many details as you can. Also research the history of the accounts and note down details in the book.. If you are speaking to HMRC make notes of all conversations in the book. you may need to go through past records seceral times, but slowly you will build up a picture of what has happened. this will make conversations with the new accountant more fruitful and also it will relieve the worry.

persa

Couple of things.

Firstly, are you involved in this directly? My concern is that if you are not a shareholder of your OH's limited company and if he was trading as a sole trader previously, neither accountant may have ever had an engagement with you and as such, you're relying on scraps of information passed to you from your OH?

What exactly have the old accountants done wrong? You need to clarify this with the new accountant. Were they engaged to carry out tax planning services and failed to make a claim or election that has resulted in a permanent loss of tax relief, or a temporary loss of tax relief only? You need to clarify how serious the failing is but more importantly, if they have failed to do something your OH (and you?) had actually paid them to do. Not all advisers will include payment advice as part of a main tax engagement, some will arrange this separately. Was the scope of their engagement clearly defined in their engagement letter?

Were the old accountants qualified? I.e. was their firm regulated by a professional body? What about the main accountant? Qualified?

Even if a client hadn't engaged me to provide payment advice etc, if they were due to make a payment on account, I would drop them a quick note as the deadline neared just to check they were keeping on top of it and didn't need my help. I would also consider claims for tax relief to be part and parcel of standard tax compliance, rather than separate work, but you do need to read the engagement letter carefully to see what was signed. If there was no engagement letter, that's unprofessional in itself - all accountants know how important it is to clarify the scope of their work to avoid misunderstandings.

I would advise digging out that engagement letter, then talking to the new accountants. If they genuinely feel the old accountants have done you a disservice, you should make a complaint to the old accountants and to their regulatory body, assuming they were qualified.

Re dividends, yes, dividends save NI, but taking income out of a company in this way reduces relevant earnings for pension purposes, etc. If pension planning is an issue, do discuss this with your current advisers first, rather than simply making the instruction to book a dividend in the accounts.

PS All practising accountants (even ones giving 'free' advice) should have a decent level of professional indemnity insurance, i.e. if someone has messed up, their insurers should pay up. Big 'if' though - there's a difference between being a middling accountant and being an incompetent one. You need to make sure your new accountants are not overplaying the old accountants' failures. (Which again, would be unprofessional in itself!)

Nerris

Thank you for your posts.

There is quite a lot for me to consider - and you are right to raise the issue of the letter of engagement.

I guess that I just had faith (maybe wrongly) that they would do the right thing by my husband's business, or at least make a suggestion or two of the best way forward. Instead I feel that we've been neglected for the past 3 years, now possibly paying out thousands of pounds in one hit and we'll have to just accept it because they can turn it back on us and make it our problem.

I really appreciate your responses, they've been very helpful, I still don't fully understand what they have/haven't done but will hopefully know more next week.

Acc72

persa wrote: »

What exactly have the old accountants done wrong? You need to clarify this with the new accountant. Were they engaged to carry out tax planning services and failed to make a claim or election that has resulted in a permanent loss of tax relief, or a temporary loss of tax relief only? You need to clarify how serious the failing is but more importantly, if they have failed to do something your OH (and you?) had actually paid them to do. Not all advisers will include payment advice as part of a main tax engagement, some will arrange this separately. Was the scope of their engagement clearly defined in their engagement letter?

The above reply pretty much sums it up.

I have seen quite a lot of "how much should I pay my accountant" type questions on this (plus other) sites, as people look to save money by looking for a minimum level of service, but do not consider the "added value" services and then complain when they hear of some "tax saving scheme" (usually from a "bloke down the pub").

If you asked a builder to replace your windows, would you then look to sue them 6 months later if your roof started leaking because they didn't tell you that some tiles were loose ?

Nerris

Acc72 wrote: »

The above reply pretty much sums it up.

I have seen quite a lot of "how much should I pay my accountant" type questions on this (plus other) sites, as people look to save money by looking for a minimum level of service, but do not consider the "added value" services and then complain when they hear of some "tax saving scheme" (usually from a "bloke down the pub").

If you asked a builder to replace your windows, would you then look to sue them 6 months later if your roof started leaking because they didn't tell you that some tiles were loose ?

I don't think that's quite the point here. They were instructed to complete our tax returns, I would have presumed that would have encompassed offering any advice to minimise the financial blow, in their professional opinion.

For whatever reason, as far as I can gather at the moment, they appear to have either not done this correctly or they have carried out some work and not informed us of what it is they have done and it looks as though it will cost us money as a result.

I have no qualms about paying an accountant for any work that they do as long as they do it with reasonable care and attention.