Accountant's liability

What it means

An accountant's liability is their duty to compensate a client for loss caused by a mistake in their work, such as a late tax return, an incorrect entry or a missed deadline. It arises from the bookkeeping services agreement and from the general rules on compensation for damage.

Towards the state and the authorities, however, responsibility does not shift. The reporting entity and its statutory body are responsible for keeping the books, filing returns and paying taxes, even when an external firm does the accounting. The client receives the penalty for a late return and can claim compensation from the accountant if the accountant was at fault.

The extent of liability depends on the contract and on who was at fault for what. The accountant is not liable for errors caused by the client delivering documents late, incomplete or untrue. The contract can cap compensation, but a full exclusion of liability for intentional or grossly negligent conduct generally will not stand.

How it works in practice

When loss occurs, the client must prove the accountant's breach of duty, the loss itself and the causal link between them. Records of documents handed over and of correspondence are therefore important. An accountant who logs receipt of materials and warnings given to the client is better placed to defend against unjustified claims.

Many accounting firms carry professional indemnity insurance covering losses caused by mistakes in providing services. For tax advisers and auditors, such insurance is required by law; for ordinary accountants it usually is not. When choosing an accountant, it is sensible to ask about it and check the level of cover.

Typical cases include penalties and interest for late or incorrect filing, a lost right to deduct input VAT, payroll errors leading to extra contributions, or penalties under the Accounting Act for unpublished financial statements. Disputes are often settled by agreement; if not, a court decides.

What to watch out for

A managing director should know that an external accountant does not relieve them of their own director's liability for proper bookkeeping and meeting tax obligations. The director should have at least a basic overview of deadlines and the tax account balance and regularly review the outputs they receive.

Claims for compensation are subject to limitation periods. If a client discovers the accountant's mistake, for example during a tax audit several years later, part of the claims may already be time-barred. Mistakes are therefore best dealt with as soon as they are found, raised in writing, with all related documents kept.