Bad advice from accountant: Can we recover money from them?

SilverSmith_2

We have a subcontractor who recently registered for VAT.

Long before he registered (and months before the start of the tax year) we asked our accountant (a "Senior Accountant" from a large company) whether we needed to make any changes in preparation.

They responded (in an email) that no changes were needed and we should simply deduct the VAT we paid him from our VAT liability.

However, we were on the Flat Rate Scheme so his VAT was not deductible. They had assumed, without checking, that we were on Standard VAT.

In Q1 of this year we ended up paying about £2,600 more VAT under the FRS than we would have if we had switched to the Standard scheme.

We arranged to switch in Q2 and asked the accountants to request backdating of the switch (which HMRC state is allowed with good justification and I can't see many better justifications than an accountant's negligent advice).

HMRC has now declined to backdate it.

We are now going to talk direct to HMRC clearly stating our accountants' negligence as the reason justifying backdating.

If that fails can we recover the amount the accountants' advice cost us from their company?

pjs493

Have you considered changing your accountant?

my husband learned a few years ago that the accountant he’d been using had failed to tell him about claims he could have been making related to food expenses with his job. He learned about it from a colleague who’d been claiming these against his tax bill for years. 

My husband asked his accountant why they hadn’t told him he could claim and the accountant brushed it off. He ended up engaging a different company who were able to back date the claims from the last few years. It was too late to claim anything older. He tried to get compensation from the old accountant but they stood firm and refused to compensate him. It wasn’t worth taking it further, as it would have cost my husband more in legal fees than he’s lost out on. 

Savvy_Sue

What does your contract with the accountants say?

SilverSmith_2

pjs493 said:

Have you considered changing your accountant?

The reason we're with a senior accountant is that more junior ones failed us and the team leader has been good until now. We didn't switch then because we're planning on closing the company at the end of this tax year anyway so it hasn't seemed worthwhile (until now). And honestly, switching now wouldn't help us get the money back either. I think our best chance is to apply pressure while remaining with them to the end... and they do care about their TrustPilot reputation, as we discovered before.

SilverSmith_2

Savvy_Sue said:

What does your contract with the accountants say?

That hadn't occurred to us. I will check. Would you expect a clause addressing negligence in an accountant contract?

Hoenir

SilverSmith_2 said:

They responded (in an email) that no changes were needed and we should simply deduct the VAT we paid him from our VAT liability.

However, we were on the Flat Rate Scheme so his VAT was not deductible. They had assumed, without checking, that we were on Standard VAT.

Was the original question asked in an email? 

Savvy_Sue

SilverSmith_2 said:

Savvy_Sue said:

What does your contract with the accountants say?

That hadn't occurred to us. I will check. Would you expect a clause addressing negligence in an accountant contract?

Not necessarily. I'd expect something along the lines of them advising but you remaining responsible for decisions and submissions (because you are!)

I know this will sound harsh, but you're expected to understand advice and its implications. Yes, Senior should have checked, and if your question included the reminder that you were on FRS then he has less excuse for misadvising you.

Similar: I used to do the internal admin for a small payroll and pension scheme. If I had to ask the external companies anything I'd quite often be questioning their response. At the payroll company there were only 2 people I'd trust to give the right answer to anything!

We did take payroll back in house after a few years of this: decided I couldn't get it any more wrong than they did. Good software helped!

SilverSmith_2

Hoenir said:

SilverSmith_2 said:

They responded (in an email) that no changes were needed and we should simply deduct the VAT we paid him from our VAT liability.

However, we were on the Flat Rate Scheme so his VAT was not deductible. They had assumed, without checking, that we were on Standard VAT.

Was the original question asked in an email? 

Yes. We have evidence of both the question and response.

Pennywise

Sorry, but surely you knew you were on the flat rate scheme and couldn't claim input VAT charged by your suppliers.  You presumably were paying VAT to other suppliers which you couldn't claim, i.e. for materials, telephone bills, waste disposal, professional fees, etc.  Why did you think you'd be able to reclaim input VAT charged by a subcontractor when you knew you couldn't claim it from payments made to anyone else?  

SilverSmith_2

Pennywise said:

Sorry, but surely you knew you were on the flat rate scheme and couldn't claim input VAT charged by your suppliers.  You presumably were paying VAT to other suppliers which you couldn't claim, i.e. for materials, telephone bills, waste disposal, professional fees, etc.  Why did you think you'd be able to reclaim input VAT charged by a subcontractor when you knew you couldn't claim it from payments made to anyone else?  

I suppose there were accountants fees we weren't claiming VAT back on, nothing else. The VAT on them would be less than the benefit of the FRS. The point is that I explicitly asked to be informed of any steps we should take and the accountant "surely" (and professionally) should have known all the ins and outs but misled us.

SilverSmith_2

UPDATE: Our accountant has now contacted HMRC directly instead of going through the company team that does the job (and who got the first, negative, response from HMRC).

Magically now HMRC seems to understand and will review, with a current status of "There's no reason it shouldn't be backdated"... so it's all looking a bit brighter at the moment.