To sue for negligence? Tax related

[vatsucked]

My Accountant has given me incorrect advice claiming that my training company was exempt from VAT due it having vocational elements. Turns out I needed to pay VAT at 85K turnover like every other business. It’s now two years on and today he told me I’d be liable and the VAT owed is more than 100K. I don’t have that much available. Had I had known, I would have ran my business differently, made different structural changes, hired less staff and invested less in resources and also charged more! To the tune of 20%! It could bankrupt me.

I’m devastated. The Accountant is a family friend and this means I need and want to keep the relationship warm. I do think it was an honest mistake with misinterpretation of the rules.

However the impact on my business and mental health is massive. Liability to pay it rests with me. I accept. But surely there is a duty of care to give accurate advice as my agent?

If there are penalties to pay, I’m right to ask the Accountant to pay these aren’t I? Would I have a legal case? Or is this just something I’m going to have to take on the chin?

I’m gutted. Is this really an oversight on my behalf at the end of the day? What an expensive learning curve. I know I’ve been exceptionally lucky that my business thrived so quickly, but I do operate on low margins. Will HMRC accept instalments? I’ve got to make that call on Monday. I’ve got a whole team who rely on me for their jobs. Yikes. Any help would be appreciated. Massively.

Can't help with negligence but I believe HMRC do take instalments depending on the circumstances so well worth having a discussion with them.

Here take installment s and are very helpful if you phone. Can't help with the other negligence but maybe seek legal advice

my training company
What's the structure - Limited Company or sole-trader/partnership?

Hmrc not here

All the best op

Do they have insurance to cover mistakes?

He should have professional indemnity insurance, surely? If he's made an error in relation to the advice he was engaged to give your company, it sounds like you might have a claim. Do you have insurance which might cover the costs of getting advice from a specialist solicitor?

S/He's most likely got insurance I should think. I imagine youd have to pay HMRC and then make a claim against her/him which theyd use their insurance for.

If your customers were also VAT registered, can you not raise an invoice now for the missing VAT, which they can claim back anyway. You have two years (or four years for written contracts) to present an invoice so can you not send VAT only invoices with an explanatory letter.

How did you find out he'd made a mistake? I'm pretty sure there's a vat exemption for educational businesses. It might mean you should still have registered but not actually charging vat.

But either way, I'd speak directly to HMRC and see what they say. If you do owe they'll be able to do a payment plan so you're not having to pay one lump sum.

Also, your accountant should have indemnity insurance to cover such instances.

Was he actually a trading accountant? I've heard things like this happen when friends take advantage of mates rates or even just being kind and giving the business to say, a retired accountant, forgetting that that means they have no indemnity insurance should things go wrong.

As he is your agent and not your principal, ultimate responsibility to ensure your tax affairs are in order does rest with you.

It may be you could claim against him but that really depends on the nature of your engagement with him (check your engagement letters standard terms + schedules of service).

What has promoted this change of mind? Have you recently given him new information which might have made him change his assessment?

I am a bit confused by your post as you ask can you sue whilst also saying you want to keep the relationship warm. I think these two things are mutually exclusive.

On a practical note, you need to deal with HMRC as soon as possible. They will be very likely to hold a firm line that ultimately the book stops with the company directors, not the accountants. But they may be sympathetic if they can see that there has been a genuine error and accordingly agree a repayment plan. They won’t waive the VAT, you are going to have to find it. Needless to say, make sure the calculation is robust and includes any VAT offsets you can make.

If you have the evidence, you could separately make a legal claim against the accountant, but I think you are unlikely to win any more than compensation for your fines / interest, they won’t be made to take on the actual VAT liability, that is your business’s tax to pay.

@TimeForTeaAndG

How did you find out he'd made a mistake? I'm pretty sure there's a vat exemption for educational businesses. It might mean you should still have registered but not actually charging vat.

For schools, universities, yes. A small (I presume) Ltd company providing training services, no I doubt it very much.

I would think you need to change your accountant and at least consult either a tax lawyer or one of the larger accountancy firms such as PWC, KPMG etc. (if in UK). Not such a good friend though, I would have thought or accountant for that matter.

A supplier did the same with me- our fd was happy to pay invoices for the vat and then reclaim it. Try some of your clients.

A profit making business is unlikely to get the vat exemption for education.

Talk to HMRC asap and try to agree a payment plan that you can manage.

Check if you can pass any VAT on to customers who might be in a position to recover it if they are making taxable supplies.

Factor into your business plan that a possible factor in your rapid growth is likely to have been your ability to charge low prices due to not adding the VAT, thus undercutting competitors by 20%.

You don't need a firm the size of a big four! Smaller businesses are well served by the likes of saffery champness and other mid tier, or if you go on the ICAEW website you can search for a local ACA with tax specialism, you can probably do the same for the ATT.

Very sadly my experience with small business accountants is that they are surprisingly prone to error. I've had one that got the rules wrong and had us on the wrong flat-rate VAT for 2 yrs when we first started. Two others that repeatedly had errors in the VAT returns. Luckily our errors were in the several 100s of £, not bigger. Eventually I decided that it was taking me more time to check the accountants' work - particularly on book-keeping - than to do it myself.

HMRC are usually quite helpful if you can speak to them. I've had the impression that they would rather help you get it right than punish you.

Are you in the FSB? They may give some advice.

Do you have the 'insurance against VAT investigation' that accountants etc are always trying to sell?

Do you have legal cover with your business insurance? If so use it to get advice. Taking legal action is only worth it if you have a good case and the defendant has deep enough pockets. If your accountant does not have PI insurance they are unlikely to be able to satisfy any judgment against them. Best case scenario is any legal action could take 2 years plus in any event so you will need to engage with HMRC in the meantime in order to defer or agree an instalment plan (which they don’t have to give you)

Are they qualified, are they regulated, are your customers vat registered and perhaps most importantly is it a limited company?

@vatsucked VAT for courses is a complex area. Let’s break it down.

1. Are you trading as sole trader, partnership or Limited company?
2. What type of course is it?

We can establish if you should be VAT registered from your answers.

Regarding the potential VAT liability, you probably won’t be able get this back from your accountant’s insurance. Your accountant is an agent and you are ultimately the principal responsible for your accountant’s actions. To comply with insurance requirements, your accountant’s contract with you will state this.

If you find a genuine error and disclose it to HMRC, they will offer you a payment plan in most cases.