Our client was investigated by HMRC due to her negligent accountant. We helped her to achieve a good outcome without going to court.
Mrs A had employed a firm of chartered accountants since 2010 to submit her tax returns for her. In 2013, out of the blue HMRC informed Mrs A that they were investigating her tax return for the tax year 2011-2012. Owing to some discrepancies HMRC informed her that they would be extending their investigation into other tax years.
Mrs A was continually reassured by her accountant that she had nothing to worry about and that HMRC’s investigation would lead nowhere. As a result, Mrs A instructed her accountant to correspond with the investigators and to deal with any discrepancies and resolve them.
By 2018, the investigation was still ongoing with no resolution. Mrs A lost faith in her current accountant to manage the investigation, so she employed a new one to move things forward.
Mrs A’s new accountants soon established that the previous accountant had submitted returns with numerous errors and undeclarations of income. They also discovered that the previous accountant had not been responding properly to HMRC’s correspondence and was unable to deal with their enquiries. This led to penalties and fines against Mrs A.
These fines were on top of the penalty interest already payable on a substantial amount of unpaid and overdue tax. The most worrying part of this for Mrs A was that because her accountant had not be fully cooperating with HMRC, they considered her to be a ‘deliberate’ tax defaulter.
Mrs A’s new accountants took up the investigation and prepared correct tax returns to replace those submitted by Mrs A’s original accountant. These new returns were accepted by HMRC. HMRC were also persuaded that Mrs A had not deliberately misled them and they accepted that the under declaration of income in the previous returns were the fault of her previous accountant.
However as a result of the errors of the first accountants Mrs A still had to accept reduced fines and penalties of £27,00, she had also spent £30,000 with her new accountants in professional fees. She paid the outstanding amount with HMRC and then contacted our professional negligence team to see if we could help her.
What We Did To Help
We identified several breaches of professional duty on the part of her accountant and set these out in the letter of claim. These breaches included:
- under reporting Mrs A’s tax liabilities in four years;
- over reporting Mrs A’s tax liabilities in one year;
- failing to cooperate with HMRCs investigations in a competent way;
- failing to keep Mrs A informed of HMRC correspondence;
- failing to inform Mrs A of the seriousness of the investigation and its consequences;
- negligently advising Mrs A that she was under no obligation to pay the amounts owed.
We also showed that the documentation Mrs A gave to her new accountant was sufficient to produce correct tax returns as her amended tax returns were submitted with the same information and they were accepted by HMRC.
Shortly after the letter of claim was received by her previous accountant, an offer was made of £15,000 plus legal costs in full and final settlement. This offer was rejected.
We made a counter offer £40,000 plus legal costs on Mrs A’s behalf so we could try to reach a swift conclusion.
Outcome of the Case
Mrs A’s previous accountant (and their professional indemnity insurers) decided to agree our offer of £40,000 and paid legal costs of £11,000. This allowed Mrs A to recoup all her legal costs and received a settlement to cover most of money she had to pay out in penalties and fees, without the stress and expense of going to court.