If your accountant makes a mistake, it can affect some of the most important parts of running your limited company, from annual accounts and Corporation Tax returns to payroll and VAT.
For many small-company owners, their accountant is the most important professional they deal with regularly.
Although most of the time everything should run smoothly, accountants (and their support staff) are human and can make mistakes. Classic mistakes include missing filing deadlines or mis-categorising expenses.
If something does go wrong, you need to know who is responsible for putting it right, whether any penalties are due, and who should pay any fines and penalties if they apply.
Who is responsible if your accountant makes a mistake?
Although your accountant may prepare and submit most of your company’s filings, you remain legally responsible for your limited company as a director.
This includes ensuring the company’s accounts are accurate and filed with Companies House on time, as well as meeting its tax obligations.
In reality, few contractors will recalculate their Corporation Tax liability or check every accounting entry themselves.
You are paying an accountant for their professional expertise, after all, but you should read your accounts and other important documents before approving them and ask about anything which does not look right.
Read more about what to expect in our guide to limited company accountant duties and responsibilities.
What mistakes can an accountant make?
Accounting errors range from simple administrative mistakes, which can be corrected quickly, to more serious problems that result in additional interest, penalties, or professional fees.
For a typical contractor company, problems might include:
- recording income or expenses incorrectly
- missing legitimate expenses or tax reliefs
- claiming an expense which is not allowable
- calculating Corporation Tax incorrectly
- recording salary or dividend payments incorrectly
- making mistakes with VAT or payroll
- submitting accounts or tax returns late
- giving incorrect tax advice
- failing to tell you about an important filing or payment deadline
The consequences of these mistakes will depend on the error and how quickly it is discovered. An incorrect bookkeeping entry caught before the accounts are filed may be straightforward to fix, whereas an error which affects previously submitted accounts or tax returns could take a lot of time and money to correct.
Can your accountant correct accounts which have already been filed?
If a mistake is discovered after your annual accounts have been submitted, your accountant can prepare amended accounts and file them with Companies House.
The amended accounts need to cover the same period as the original accounts and make it clear that they replace the previously delivered accounts.
We explain how this works in our guide to amending limited company accounts after they have been submitted.
Where the error also affects the company’s Corporation Tax Return, your accountant will need to check whether this should be amended with HMRC. Companies can normally amend a Corporation Tax Return within 12 months of the statutory filing date.
Errors should be corrected as soon as they are identified, particularly where they have resulted in too little tax being paid.
What happens if your accountant misses a deadline?
Missing a deadline can cause more problems, as any penalty will usually be issued to your company rather than your accountant,
Companies House holds directors responsible for ensuring annual accounts are filed on time, including where an accountant has been appointed to prepare and submit them.
The same basic principle applies to your company’s tax affairs: you don’t transfer your director’s obligations to your accountant when you appoint them.
This makes it useful to have a basic grasp of your limited company tax and accounting deadlines, even where your accountant sends reminders and handles every submission on your company’s behalf.
If you receive a penalty following an apparent mistake by your accountant, contact them straight away and establish exactly what happened.
Depending on the circumstances, there may be grounds to appeal against the penalty, and your accountant should be able to help you with the process.
Will your accountant pay a penalty they caused?
Where the accountant clearly caused a penalty through an error or missed deadline, you should ask the firm how it intends to resolve the matter.
Much will depend on the circumstances. If you supplied everything requested well before the deadline and the accountant simply failed to make the submission, the position is very different from a case where the accountant repeatedly chased you for information which arrived too late.
It is also important to separate additional tax which was always due from a genuine financial loss caused by an accounting error.
If the original calculation was wrong and your company owes another, say, £1,000 in Corporation Tax, you still have to pay it because the tax was due anyway.
But if the mistake also results in penalties, additional interest, or other costs, you may be able to ask your accountant to cover them.
If you keep accurate records (made even easier by using accounting software), it is always easier to identify where mistakes have been made, by whom, and when.
What can you do about a serious accounting error?
Ask your accountant to explain what went wrong and how they plan to put it right. If the mistake has led to extra tax, interest, or penalties, get them to spell out which costs were unavoidable and which arose only as a result of the error.
If you are unhappy with the response, you can make a formal complaint using the firm’s complaints procedure.
Accountants who belong to professional bodies such as ICAEW or ACCA are also subject to their respective professional standards and complaints procedures.
If your accountant’s mistake causes you a significant financial loss, their professional indemnity insurance may cover the cost. For larger disputes, you may need to take independent professional or legal advice.
It is useful to know what qualifications your limited company accountant has, particularly as the term ‘accountant’ itself is not legally protected in the UK. Even if the firm is a member of a professional body, many individual staff members aren’t.
Should you change accountants after they make a mistake?
A single mistake doesn’t necessarily mean you need a new accountant, especially if they spot the problem quickly, explain what went wrong and put it right without causing you any further problems.
In reality, though, just one error can instantly erode trust in an accountant, especially if it’s significant. If the error comes on top of other ongoing concerns (such as poor communication, it may well be time to seek a new accountant.
Your old and new firms will normally deal with the transfer of records through the professional clearance process.
If you decide the relationship has run its course, you can change contractor accountant at any point, although timing is always a consideration. Some leading contractor accountants will also waive catch-up fees if you join them.