Professional negligence – hot topics
9th March 2016 by Fiona Hotston Moore
As forensic accountants we act as expert witness or party advisers in claims against fellow advisers. We can act for the claimant (the client) or the defendant (the accountant or other adviser). We have over the last decade seen an increasing willingness for clients to seek redress from their advisers and their insurers.
The greatest area of concern for accountancy firms and their insurers remains tax avoidance and particularly claims against accountants and other promoters of failed tax products including film partnerships, employee benefit trusts, stamp duty schemes, inheritance tax schemes, share loss schemes and certain pension schemes utilising offshore trusts.
We have been involved as expert witness in a variety of cases involving tax disputes with HMRC, claims against accountants/tax advisers/independent financial advisers and also in divorce cases where one party has invested in film schemes and the court requires an opinion on the likely future tax liabilities arising from the dispute with HMRC.
Other hot topics in professional negligence claims against accountants, tax advisers and occasionally lawyers include:
Subject to satisfying qualifying conditions this relief reduces the capital gains tax (CGT) on a business disposal or a share sale from 28% to 10% on the first £10m of gains. We have seen a number of claims for substantial sums where either the client was expecting to qualify for the relief and did not on a breach of the conditions missed by the adviser, or where the claim for relief was not made on time.
Auditing Standards are not as black and white as tax regulations. Whereas in a claim involving tax negligence the position is usually relatively clear cut in that the claim or election has failed, auditor negligence typically involves a more subjective assessment of whether the audit work met the standards of a reasonably competent auditor.
The main areas where we have seen claims against auditors relate to failure to: a) adequately audit whether the entity was a going concern and; b) to conduct an adequate audit of the recoverability of assets such as loan books or debtor balances.
- Historically claims against corporate finance firms and accountancy firms undertaking corporate finance have included:
- Failings in tax advice on transactions (occasionally due to lack of clarity as to who is giving the tax advice);
- Inadequacies in work when acting as reporting accountant on listings particularly overseas entities coming onto the UK market; and
- In relation to financial due diligence on acquisitions.
Future potential areas of risk for accountants and tax advisers
Changes in tax regulations inevitably open up new potential areas for future professional negligence claims. Claims are likely in areas such as:
- Probate – since late 2013 accountants can now get involved in this area of work and existing experience in the legal sector suggests it’s a common area for claims due to disputed wills, poor estate administration, poor tax advice and unhappy beneficiaries.
- Annual Tax on Enveloped Dwellings (ATED) – ATED is an annual tax charge for non-natural persons who own property and can amount to up to over £200,000 per property. Claims could arise where advisers have failed to spot, advise and make claims on relevant clients in their client portfolios.
- Capital gains tax on residential properties sold by non UK residents – the UK is popular with non UK resident purchasers of property but changes in 2015 mean that gains by such owners may no longer be tax free. Advisers need to ensure the change is not overlooked.
- Pensions – whilst recent changes pose most risk to independent financial advisers, accountants must be careful not to stray into advising on areas where they are not qualified.
- Capital allowances – changes in 2014 make it more complex to claim capital allowances on purchases of commercial property. Advisers must ensure they are advising clients on the need to get sellers consent and file claims on time.
For more information on any of the above issues please contact Fiona Hotston Moore.
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