Accountant cost us a lot of money - any comeback?

Lavendyr

Nerris wrote: »

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.

No - completing your tax returns is tax compliance. Advising you on how to minimise your tax burden is tax advisory. You need to understand exactly what they were engaged to do before making assumptions.

Edit to add: Regardless of what they were engaged to do, your husband should have been aware as a sole trader that he would need to pay tax and ultimately doing so is his responsibility - not that of the accountant.

persa

Lavendyr wrote: »

No - completing your tax returns is tax compliance. Advising you on how to minimise your tax burden is tax advisory. You need to understand exactly what they were engaged to do before making assumptions.

Agreed, to a point. Depending on the complexity of the work and figures involved, I would consider certain claims and elections to be part of ordinary tax compliance rather than advisory. I suppose whether you should expect any of those claims to be part of compliance work depends on the level of fee charged; the OP hasn't commented on how expensive/cheap the old accountants were.

The OP doesn't have the full facts yet and neither do we - but at the very least, the old accountants seem to be at fault of not managing their client(s)' expectations very well.

Lavendyr

persa wrote: »

Agreed, to a point. Depending on the complexity of the work and figures involved, I would consider certain claims and elections to be part of ordinary tax compliance rather than advisory. I suppose whether you should expect any of those claims to be part of compliance work depends on the level of fee charged; the OP hasn't commented on how expensive/cheap the old accountants were.

The OP doesn't have the full facts yet and neither do we - but at the very least, the old accountants seem to be at fault of not managing their client(s)' expectations very well.

Yep, fair points, it does seem that the previous accountants have not been explicit as to the level of work they were doing, nor particularly helpful in supporting their client who does not appear to have a strong grasp of these things.

I do however think the OP needs to get to the facts in this matter before making assumptions. From the info we've got, tax returns were being produced, but what happened thereafter is unclear.

So I'd question firstly whether returns were actually submitted to HMRC (which is ultimately the responsibility of OP's husband, even if the accountant was registered as agent - unless the accountant said they would submit & failed to - which would provide comeback against the accountant)

Secondly I'm unclear as to whether the tax shown as due on the return was subsequently ever paid by OP's husband. If tax returns were submitted to HMRC which showed tax as being due, I'd be very surprised if OP's husband would have got away without actually paying it over. And if he has paid his tax in respect of previous tax years I'm struggling to see where this large 'hit' is going to come from...unless the returns themselves were wrong.

As an aside, the new accountant doesn't seem to be a tax specialist, hence why they are consulting someone else. Therefore I'd hesitate to jump the gun on this one - they may not actually know what they are talking about! Wait & see what the tax specialist they're consulting has to say.

ILW

A accountant then consulting a tax specialist sounds like it could cost more in fees than any tax saved based on the OPs profit figures.

Nerris

Thanks for your responses, although I do get the impression I'm in the minority in my views.

Well I've heard more and they didn't even do the basics. They haven't even taken advantage of my husbands personal allowance for 2 years:

Wasted his personal allowance for 2008/09;
Wasted his personal allowance for 2009/10;
Lost 'overlap' relief ,possibly £2,250 in terms of tax.

Overall, possibly as much as £6,000 bigger tax bill than it should have been because they clearly don't know their !!!! from their elbow.
Did I mention they specialise in tax?!:rotfl:

And we have to find all this at the end of this month!

I do appreciate your responses and the time you've taken to express them, but at the same time I can't keep arguing that my accountant is totally trusted and isn't saying all this just for !!!!!! and giggles. If he says they have cost us this much, then they have. Now I just have to work out if there is any comeback.

P.s I think I've already said I am not being charged for the tax advisor!

Pennywise

persa wrote: »

I suppose whether you should expect any of those claims to be part of compliance work depends on the level of fee charged; the OP hasn't commented on how expensive/cheap the old accountants were.

I'd disagree with that. Regardless of price, the accountant should do what was agreed in the letter of engagement. If an accountant gives a price of say £300 p.a. and says it covers compliance and planning, then he has to do the planning even though that price is ridiculously cheap. Likewise if another accountant quotes £1,000 for just compliance, it may seem expensive, but if the client has accepted that quote then again, it becomes irrelevant as long as the accountant does what he said he'd do. The law, insurance claims, etc., only intervene when something hasn't been done or has been done negligently - not on a question of value except in extreme circumstances.

If the OP checks the letter of engagement and finds that it covers tax planning as well as preparing the return (compliance), then they appear to have a case/claim. If the letter of engagement is just for compliance and makes no mention of planning etc., then very unlikely to be a claim. In the latter case, the best that can be done is that the new accountant "corrects" the past returns. If it's a matter of changing loss relief, or capital allowances etc., as suggested by the OP's comments re wasting personal allowances, then there's every chance that the prior returns can be corrected thus "repairing" the damage. In my mind, this is the area where the OP and the accountant should be concentrating on rather than thinking about potentially wasting time and money in making damages claims against the old accountant. Far better to put things right and move on rather than dwelling on the past. Hindsight is wonderful - looking back today, then yes, a particular course of action may not look optimum, but if you put yourself back in time and look at the reasoning a year ago, 2 years ago, etc., then it's equally possible that the decisions made were right at that time, given the history to that point and what was expected of the future.

It would be helpful if the OP shared with us the reasons why there is an apparent extra tax cost and wasted allowances. Without some indication of the reasoning, it's hard to offer any real advice. From what's been said, I'd stick my neck out and suggest it's all to do with the selection of business year end - i.e. a different accounting year end could have meant profits being taxed differently in the relevant tax years. If I'm right, this is very much a swings and roundabouts matter - i.e. options to defer the tax payments by a year or so, which on the one hand helps initial cash flow, but on the other potentially wastes personal allowances - if a year end of say 30 April or 31 May has been chosen, then yes, the tax will have been deferred by a year, and there is more potential for wastage of personal allowances in the earlier, low profit, years and more risk of falling into higher rate tax liabilities in a later year - however, overall, this could still mean lower tax over the life of the business and even if not, it would certainly have eased cash flow by delaying the tax payments. This is definitely the kind of thing that may fall into the "right thing to do at the time" camp, but with hindsight proved to be the wrong thing.

I'd also suggest caution before you know the full facts. New accountants can be very critical of previous ones - I know, I've done it myself a few times - just to make themselves look clever and try to impress a new client. I don't do it anymore because most times the old accountant didn't do things wrong at all. When I became aware of the full facts, then what the prior one did usually makes sense. Only a couple of times in the last ten years (since starting my own practice) have I actually come across a previous accountant (usually large firms) who cost the client significant amounts of money. In dozens of other situations, whilst I may have done things differently, there was never large sums of tax at stake. From my own experience, I don't bother looking for someone to blame, etc., I concentrate on putting things right for the current year and then going back and changing what I can in prior years, going back as many years as possible within the time frames for amending SA returns and then apply for error/mistake claims for earlier years. In my entire 30 years as an accountant, I've been involved in a handful of cases of negligence claims against previous accountants and never once had a successful claim because usually the accountant can show that what they did was in fact reasonable at the time given the information at that time and the discussions held with the client. Like I've said, hindsight is a wonderful thing.

Nerris

Thanks for your post.

You raise some important points. To be honest until I get a more comprehensive breakdown of what has/hasn't been done, I won't be able to approach the previous accountants and ask them why they did x, y or z. If they give me fairly logical explanations, taking into account that things may have been planned differently in the early days of running the business, then fair enough. Whether or not my current accountant agrees will be by the by, at least it will give us an idea of what they were trying to achieve.
However, if they struggle to explain why, then it's obviously been a mistake (two years running!).

Like I said previously, they are used to dealing with farming accounts and rich landowners. We were small fry to them and I was always suspicious that our accounts were being left to a junior in a broom cupboard. So a mistake is not beyond the realms of possibility.
However, I will give them the opportunity to explain why things were done (or not done!) before I decide which way to go.

persa

Nerris wrote: »

Overall, possibly as much as £6,000 bigger tax bill than it should have been because they clearly don't know their !!!! from their elbow. [...]
And we have to find all this at the end of this month!

Even if the tax liability to pay is larger than you would like, surely you should have expected it to be that high, the disappointment is that you have now found it could have been lower?

If the previous advisers weren't engaged to deliver payment advice, your OH really should have chased the compliance work to get some figures and work out his expected tax himself.

Nerris wrote: »

I can't keep arguing that my accountant is totally trusted and isn't saying all this just for !!!!!! and giggles. If he says they have cost us this much, then they have. Now I just have to work out if there is any comeback.

P.s I think I've already said I am not being charged for the tax advisor!

You need to clarify whether they have permanently "cost [you] this much" or whether it's a timing issue. The former is more serious.

I understand that the new accountant is not charging you right now, but he is not going to deliver 'pro-bono' advice forever - he will be expecting to win the ongoing compliance work for your OH and fee for that!

Pennywise wrote: »

I'd disagree with that. Regardless of price, the accountant should do what was agreed in the letter of engagement. If an accountant gives a price of say £300 p.a. and says it covers compliance and planning, then he has to do the planning even though that price is ridiculously cheap. Likewise if another accountant quotes £1,000 for just compliance, it may seem expensive, but if the client has accepted that quote then again, it becomes irrelevant as long as the accountant does what he said he'd do.

I agree that the level of fee does not provide any hard evidence that an accountant should or shouldn't have done something, but if an accountant is charging low fees for 'tax compliance', there should be no expectation of any extras. Reverse applies also and yes, any assumptions should always be clarified, in writing where possible, but it gives you an initial feel for the situation.

Pennywise wrote: »

If the OP checks the letter of engagement and finds that it covers tax planning as well as preparing the return (compliance), then they appear to have a case/claim. If the letter of engagement is just for compliance and makes no mention of planning etc., then very unlikely to be a claim.

To be read in conjunction with the below:

Nerris wrote: »

If they give me fairly logical explanations, taking into account that things may have been planned differently in the early days of running the business, then fair enough. Whether or not my current accountant agrees will be by the by, at least it will give us an idea of what they were trying to achieve.

I initially thought the OP was complaining about the advisers not making beneficial claims to do with, say, best use of capital allowances etc, but it sounds as if it's the initial tax planning work she is criticising. This to me can't be bundled up with 'compliance', this should be detailed separately. I now think there is little room for misunderstandings, it's either in the engagement letter or it's not.

Nerris wrote: »

In my mind, this is the area where the OP and the accountant should be concentrating on rather than thinking about potentially wasting time and money in making damages claims against the old accountant. Far better to put things right and move on rather than dwelling on the past.

I suspect they might be out of time to fully correct the 'damage', but I agree, with 31 January coming up, the drive must now be on amending the returns and dealing with 2010/11, which the OP hasn't mentioned.

Nerris wrote: »

From what's been said, I'd stick my neck out and suggest it's all to do with the selection of business year end - i.e. a different accounting year end could have meant profits being taxed differently in the relevant tax years.

If this is the case (and from reading the OP's posts, it may well be), we're really talking about cash flow and deferring tax relief. A different year end might have got a better result for right now, but it's not a permanent loss of tax and not something I would be up in arms about. Not advising on a beneficial year end isn't incompetence to me, but the mark of a particularly average adviser.

Nerris wrote: »

I'd also suggest caution before you know the full facts. New accountants can be very critical of previous ones - I know, I've done it myself a few times - just to make themselves look clever and try to impress a new client. I don't do it anymore because most times the old accountant didn't do things wrong at all. When I became aware of the full facts, then what the prior one did usually makes sense. Only a couple of times in the last ten years (since starting my own practice) have I actually come across a previous accountant (usually large firms) who cost the client significant amounts of money. In dozens of other situations, whilst I may have done things differently, there was never large sums of tax at stake. [...] In my entire 30 years as an accountant, I've been involved in a handful of cases of negligence claims against previous accountants and never once had a successful claim because usually the accountant can show that what they did was in fact reasonable at the time given the information at that time and the discussions held with the client. Like I've said, hindsight is a wonderful thing.

I do agree to an extent, everyone wants to prove it was a smart move engaging them and not sticking with the former advisers, but I have come across several bits of work where the previous advisers have actually prepared the tax incorrectly on first principles. I'm not talking about failing to spot a beneficial claim, I'm talking about the basis of preparation being completely wrong! Oh, it does happen, sadly.

Notmyrealname

I have a friend who does book keeping, forensic accounting and is excellent when it comes to tax. She has many clients who have been in your shoes. When she has told me stories about how bad some of these are (no information that could identify individuals, business etc given) she has said that she has been able to get the tax refunded in many of the cases.

Lavendyr

Nerris wrote: »

Thanks for your responses, although I do get the impression I'm in the minority in my views.

Well, it's more that we don't actually know what has/hasn't been done yet and what was/wasn't agreed to. Can't really agree or disagree without knowing more.

Nerris wrote: »

Well I've heard more and they didn't even do the basics. They haven't even taken advantage of my husbands personal allowance for 2 years:

If by this you simply mean that they haven't allowed for his PA properly in calculating his tax payable, this would seem very odd - it would be the most basic of oversights.

However if it's a tax planning question - e.g. selection of year-end, application for reliefs etc, then again the question has to go back to what they were engaged to do and whether or not they were supposed to be providing you with tax planning advice. However remember that tax is not the be-all and end-all in these things - there are commercial issues to think of when making business decisions as well as tax-motivated ones.

Nerris wrote: »

Lost 'overlap' relief ,possibly £2,250 in terms of tax.

This is less likely to be a permanent error by the sounds of it but more of a timing difference, though can't be certain without more detail.

Nerris wrote: »

I do appreciate your responses and the time you've taken to express them, but at the same time I can't keep arguing that my accountant is totally trusted and isn't saying all this just for !!!!!! and giggles.

"Trusting" your accountant is one thing, but you've stated that your old accountants were tax specialists and your new accountant has to consult a tax specialist, thereby implying that he was not one himself. Accountancy is a very broad field and while your new accountant may not be intentionally trying to mislead you, they may not be as knowledgeable about a particular area as another accountant would be.

As an aside, HMRC do frequent free courses and workshops for small business owners to help them understand the basics of tax as it is relevant to them. Business Link is also a very useful resource. I'd suggest your husband has a look into these things just to give him enough of a background to understand what he's looking at and to have a broad idea of what is going on with his tax affairs. It's obviously not a substitute for a reliable qualified accountant's advice, but it may help him to just have a better idea of the tax impacts of his business.

Hope you get it sorted and would be interested to know what the final situation ends up being and how you get it resolved.