Is My Accountant Liable If Something Goes Wrong?
When you entrust an accountant with your business’s financial records, tax returns, and compliance, it’s natural to expect accuracy, professionalism, and care. But what happens if things go wrong? Is your accountant legally responsible? Can you hold them liable for errors, mistakes, or oversights that cost you money or cause problems with HMRC or other authorities?
This article explains when and how an accountant might be liable, the limits of that liability, and what you should know to protect your interests.
Understanding the Accountant’s Role and Responsibility
Accountants provide a valuable service, but it’s important to remember they act as advisors and preparers based on the information you give them. They do not make business decisions for you, nor can they guarantee specific outcomes such as tax savings or avoiding penalties.
Their responsibility includes:
Preparing accurate accounts and tax returns based on your records
Advising you on relevant laws and regulations
Meeting filing deadlines
Acting with reasonable skill and care in their work
If your accountant fails in these duties through negligence, errors, or misconduct, they may be held liable for resulting losses.
What Does Liability Mean in This Context?
Liability means legal responsibility. If an accountant is liable, they may have to compensate you for losses caused by their mistakes or negligence.
However, liability is not automatic. You need to prove:
Duty of Care: The accountant owed you a professional duty.
Breach of Duty: They failed to meet the standard expected of a competent accountant.
Causation: Their breach directly caused your loss.
Damages: You suffered a financial loss as a result.
Without all these elements, liability is difficult to establish.
Examples of When an Accountant Might Be Liable
Incorrect tax calculations that cause underpayment and penalties
Failing to submit returns on time, resulting in fines
Poor advice leading to unplanned tax bills or legal issues
Errors in payroll causing incorrect tax or National Insurance deductions
Misclassification of expenses or income resulting in HMRC investigations
In these cases, if it can be shown the accountant was negligent and you suffered losses, they could be liable.
What Limits Accountant Liability?
1. Client Responsibility
Ultimately, the business owner or director is responsible for the accuracy of tax returns and financial records. Accountants prepare and advise but the final responsibility rests with you.
2. Engagement Letter and Terms
Most accountants’ contracts include terms limiting their liability or capping compensation. It’s important to read and understand these agreements before signing.
3. Professional Standards and Insurance
Accountants are required to hold professional indemnity insurance to cover claims arising from negligence. This provides some protection, but claims processes can be complex.
4. Reasonable Skill and Care Standard
Liability requires proving the accountant fell below a reasonable professional standard. Honest mistakes or differences of opinion are generally not enough.
What Should You Do If You Suspect Your Accountant Is at Fault?
1. Gather Evidence
Collect all relevant documents, correspondence, and records. Clear evidence will support any claim.
2. Raise Concerns Early
Contact your accountant to discuss the issue. Sometimes errors can be corrected quickly without dispute.
3. Consider a Second Opinion
An independent accountant or advisor can review the situation and provide an unbiased view.
4. Check Your Contract
Understand your agreement’s terms on complaints and liability.
5. Contact Their Professional Body
If necessary, you can complain to their regulatory organisation, which can investigate misconduct.
Can You Claim Compensation?
If your accountant is found liable, you may be able to recover financial losses through compensation or insurance claims. This could include:
Penalties and interest paid due to errors
Additional tax liabilities caused by poor advice
Costs of rectifying mistakes or audits
Keep in mind, legal claims can be costly and time-consuming, so weigh the potential benefit.
How to Minimise Risk When Working With Accountants
Choose qualified, reputable professionals
Communicate clearly and keep accurate records
Understand and review your financial documents
Ensure your engagement letter clearly defines services and limits
Stay involved and informed in your accounting processes
A good relationship and clear expectations reduce misunderstandings and risk.
Summary
Accountants can be liable if their negligence or mistakes cause you financial loss, but proving liability requires meeting legal tests. You retain ultimate responsibility for your accounts and tax returns, so working closely and maintaining clear communication is essential.
If something goes wrong, act quickly to resolve the issue, gather evidence, and seek advice if needed. Understanding your accountant’s role and the limits of liability helps you manage risk effectively.
