Contractors’ Questions: If an accountant asked me to approve my tax return, who’s liable if HMRC finds a mistake?

Contractor’s Question: For VAT, my accountant asked me to ‘okay’ the figures. They seem broadly alright to me and, as I did previously with my personal tax return, I effectively give my accountant my endorsement that the figures are correct.

But I’m not a trained accountant of course and so in the event that HMRC finds fault with the figures, whether it be personal tax, company tax or VAT, who will be liable; me or my accountant?

Expert’s Answer: Ultimately it is the taxpayer who is responsible for all submissions made to HMRC, so if there were to be an enquiry, HMRC would correspond with you the taxpayer, rather than your accountant.

Terms, caps and membership

That being said, most accountants will have their own terms and conditions which should cover most eventualities, should a mistake happen. These T&Cs will usually have a capped amount which the accountant can be held liable for -- ‘up to two year’s fees’ for example, or ‘subject to their professional indemnity limit.’

If the accountant is a member of the Association of Chartered Certified Accountants, they’ll have varying levels of professional indemnity limits, which they are required to hold, depending on their turnover. Should there be an HMRC enquiry, the taxpayer would need to liaise with their accountant separately to get a resolution.

Redress, potentially, if you're unfairly penalised

As to HMRC penalties, any penalty is raised against the taxpayer and it’s the taxpayer’s responsibility to pay the penalty. The taxpayer may then look for redress on penalties from their accountant, but this is not something that HMRC would get involved in.  Many accountants (us included) include Tax Investigation Insurance in their contractor accounting packages. This is an insurance policy that covers the accountant and taxpayer for the defence costs involved should a tax enquiry be launched.

The expert was Daniel Mepham, managing director of SG Contractor Accounting.

Thursday 9th Sep 2021
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Written by Daniel Mepham

Daniel Mepham, Managing Director of SG Professional Services Group, has been working with contractors and small businesses for over 15 years. He is a Chartered Certified Accountant with a passion for the contractor market.
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