Horrible tax dilemma

hogweed

My ex-wife has run her own small business for 8 years and, knowing nothing about tax etc, has always employed an accountant to submit her tax returns. They guy has just retired, so she’s gone to a new one. On looking through her accounts for this year, he has discovered that the previous guy has been underestimating her tax liability for the entire 8 years by around £4k a year. Her business only makes about £27k a year gross – to find £32k back-payments would mean she’d have to sell her house.
She’s suicidal. Is there anything she can do? It would seem that, despite his gross incompetence, her ex-accountant has no liabilities.
Thanks

Pennywise

Firstly, how do you know the new accountant is right and the old one wasn't. Maybe time for another opinion.

Secondly, assuming that the old accountant was a qualified and regulated one, then he will have professional indemnity insurance and you also have recourse against him through his professional body.

hogweed

Pennywise wrote: »

Firstly, how do you know the new accountant is right and the old one wasn't. Maybe time for another opinion.

Yes, that’s a good point – thanks. I've looked at it myself now though, and it does seem likely...

Pennywise wrote: »

Secondly, assuming that the old accountant was a qualified and regulated one, then he will have professional indemnity insurance and you also have recourse against him through his professional body.

Unfortunately, apparently that only covers any penalties she may incur as a result – not the actual tax liability itself, which is what would destroy her financially. Unless you or anyone else knows differently?

dunstonh

Unfortunately, apparently that only covers any penalties she may incur as a result

If she has underpaid as you say then there will be penalties.

I'm not sure how you can keep estimating each year. I would get a second opinion only because totting up the income and expenditure each year is one of the first things that is done. If that hasnt been done, then what has?

hogweed

dunstonh wrote: »

I'm not sure how you can keep estimating each year. I would get a second opinion only because totting up the income and expenditure each year is one of the first things that is done. If that hasnt been done, then what has?

Good question. It’s a funny (!!!) one. Although self-employed, she only has one customer, and the arrangement is that, every month, they pay her a more or less fixed amount to cover various expenses. Why it was set up that way, I don’t know.

Somehow, it seems that this payment should have been declared as part of her profits, and hasn’t been. It would appear that the accountant in question (an ex-Tax Inspector, if you please!) has been mind-blowingly, criminally bungling and incompetent – she is totally naïve about these things, which is why she employs one, and was genuinely completely unaware that trouble was being stored up.

And it looks like she faces ruin, without much hope of redress against him.

silvercar

If all the expenses are allowable, the tax owed will be less.

Best bet would be to discuss the accountant problem with the revenue and caome to an agreement to pay the tax owed over the next few years. They will charge interest, but at least it will mean she can continue trading. Going bust over it won't help the revenue get their tax. The plus side may be that you can claim the interest costs from the accountant's PII.

If the accountant is at fault i hope you are complaining to his professional body, so that others don't suffer in the same way.