When a limited company director disagrees with their contractor accountant

You might not always agree with your accountant. Certainly that seems to be the experience of one contractor who, as a limited company, wanted to take advantage of the £150 exemption for staff entertainment, contrary to the guidance from their accountant.

But as a general rule, you can expect to believe that what your accountant tells you is right, writes David Whiscombe, tax consultant at chartered accoountancy firm BKL. He or she is, after all, a trained professional. 

Tears and trust

However if you find yourself constantly querying what your accountant says, it’s probably time to find a new accountant (and, frankly, your accountant is unlikely to cry many tears over your decision!). If you consistently find yourself not trusting what your accountant says, the relationship has broken down. Move on, for both your sakes.

Before that crunch point, it might happen that, for whatever reasons, you don’t want to file with HMRC in the way that your accountant suggests.

What are your options if you disagree with your accountant? 

Usually, your options if you disagree with your accountant depend on the situation or type of dispute.

However ultimately, you and you alone (as the taxpayer) are responsible for giving accurate information to HMRC. Or, more accurately, to take “reasonable care” in trying to do so.

Should your accountant be telling you something that seems manifestly ‘too good to be true’ then your responsibility is to query it, and to check as far as you can that you’ve provided all the facts and that your accountant hasn’t misunderstood them. 

When you won’t suffer an HMRC penalty

Once you’ve done that, though, you’ve done your best. Then, if the advice turns out to be wrong and HMRC successfully challenge it, you’ll have to pay the right tax and interest. But you won’t suffer a penalty. Nonetheless, it’s always best to get advice in writing, in these circumstances.

Please note, the guidance I’ve just outlined doesn’t apply where ‘tax avoidance’ is involved. To be clear, to avoid a penalty for avoidance, a much higher standard of scepticism on your part is expected.

Yet what if it’s the other way – where you want to take a more favourable view than your accountant does? That will be difficult. No reputable adviser will ever be prepared to be associated with a position that is out and out wrong. The adviser will think – ‘better lose a client than a reputation, or worse.’

Grey areas, loggerheads, and a second opinion

Sometimes there may be grey areas. These are areas where an accountant may accept, on reflection, that there is reasonable filing position. Again though, if you want to avoid a penalty should you be successfully challenged by HMRC, get the accountant’s agreement in writing.

Still stuck or at loggerheads with your accountant? Well, remember you can always ask for a second opinion. Small accounting firms are, after all, usually general practitioners and can’t be expected to know everything. In the same way that a GP might refer you to a consultant, a small accounting firm might find it necessary or desirable to call in specialist expertise – no shame in that. Or, if there is sufficient depth of knowledge within the firm you’re dealing with, it may be quicker and cheaper to source a second opinion internally.

Ultimately, if you don’t like what your accountant is telling you, and you can’t persuade him or her that you are right, you can of course fire your accountant and file your returns yourself in whatever way you wish. 

Finally, it’s only for the brave (and the extremely certain)…

But – brace yourself for the following huge caveat – if it turns out you are wrong you will find it very difficult to show that you have taken “reasonable care” to file accurate returns. In fact, filing a return on a basis that a competent professional has explicitly told you is wrong is about as far from taking “reasonable care” as it’s possible to get. So, unless you want to run the risk of a significant HMRC penalty, you’d better be very very sure that you are right and the professional is wrong!