Possible Accountant Blunder

[Johncccc]

I was self-employed up until 2000 and then I moved to Ltd Company and changed my accountant. Since 2000 the same firm has done all of my LTD account and personal taxes. My pension is a self-employed annuity scheme, the contributions do not get tax relief at source, I have to claim it on my self-assessment with any higher rate relief that may apply for each year.

It has recently come to my attention that the accountants "assumed" that my contributions attracted tax relief at source and they have only calculated the tax relief at the higher rates.

Essentially I have not received the full TAX benefit of all of my pension contributions for the past 17 years. They have said they can write to the TAX office an make an adjustment for the past 4 years, that leaves 13 years that I have not had full relief. They have yet to comment as to how this situation has occurred.

Was it incumbent on the accountancy firm to verify what type of pension plan I had in 2000?
If they have made a mistake and own up to it will they be insured?
What is the likely outcome?

J

 

[STDFR33]

If they belong to a professional body (a reputable one, not a Micky Mouse trade body such as ICPA), they will almost certainly be insured.

If you have suffered a loss, the firm, or their insurers, should compensate you for the losses you have suffered.

I would expect a firm to establish this facts and not make any assumptions before submitting a return in behalf of a client.

If it’s a relatively large firm, what will have happened is a mistake in year 1. In year 2 they will have looked at the previous years’ file and assumed (wrongly) the treatment was correct.
I know of a very large firm where this unfortunately happens on a regular basis.

You need to put your grievance in writing to them. Be polite and factual, and state that you would appreciate a swift reply and conclusion given the nature and timespan of the error.

 

[Johncccc]

Hi, yes they are a very reputable medium-size firm and service a large proportion of the businesses in the area. I am not anticipating a denial, I am hoping they will own up to the error. There is some truth in what you say as the person who currently does my accounts was passed them by someone who left the company about 5 years ago. She has more or less confirmed that she made an assumption based on the previous accounting records. They are ICAEW members and ICAEW business advisors, they also have a partnership with a firm of financial advisors who did a review of my pension a few years ago.

 

[STDFR33]

Hi, yes they are a very reputable medium-size firm and service a large proportion of the businesses in the area. I am not anticipating a denial, I am hoping they will own up to the error. There is some truth in what you say as the person who currently does my accounts was passed them by someone who left the company about 5 years ago. She has more or less confirmed that she made an assumption based on the previous accounting records. They are ICAEW members and ICAEW business advisors, they also have a partnership with a firm of financial advisors who did a review of my pension a few years ago.

ICAEW are a respected bunch.

As I say, put your grievance in writing.

As a side issue, and more of a an opinion than anything else, I always wonder why businesses are happy to pay a premium to a larger firm to have the majority, if not all the work completed by an inexperienced junior.

 

[Johncccc]

I did dip my toe in the Water a few years ago and was recommended to a new firm of accountants who had just started up, they had an ex-Inland Revenue guy onboard for tax matters. We spent about 4 hours discussing my profile and they suggested that I should go on a flat rate VAT scheme and provided very attractive figures to prove there was a benefit in the move. I was incensed with my current accountant for NOT recommending it earlier until I shared the figures I had been given and they pointed out that the new firm has miscalculated the flat rate scheme benefits. Since then I have been very wary.

 

[STDFR33]

I did dip my toe in the Water a few years ago and was recommended to a new firm of accountants who had just started up, they had an ex-Inland Revenue guy onboard for tax matters. We spent about 4 hours discussing my profile and they suggested that I should go on a flat rate VAT scheme and provided very attractive figures to prove there was a benefit in the move. I was incensed with my current accountant for NOT recommending it earlier until I shared the figures I had been given and they pointed out that the new firm has miscalculated the flat rate scheme benefits. Since then I have been very wary.

4 hours is long. You wouldn’t have got more than an hour of my time, nor would you have received any detailed calculations. I’d never earn anything if I gave so much to prospective clients as there wouldn’t be any time left to do fee earning work!

I suspect that you received a generous amount of time and exaggerated benefits due to them being a start up - albeit a dishonest one.

Anyway, we are going well off track so I’ll leave it there.

 

[Johncccc]

It was a case of better the devil you know, thanks for the input.

 

[SteveHa]

As a matter of interest, did you approve your Tax Return each year (which by extension, suggests that you have examined it and satisfied yourself that it's correct)?

 

[Johncccc]

Yes, I did approve the tax returns but in combination with many conversations at various points in time about the tax efficiency of my pension contributions and on each occasion I was assured that I was maximising the benefits. I have thought about what I was actually signing and I approved in good faith that they accurately reflected my position. You could argue that the forms were filled correctly because they were based on an assumption made by the accountant which it transpires is inaccurate. I am an expert in IT and I would not expect my customers to question my performance and have no reason to suspect that the accountant would expect me to do the same about their performance. J

 

[Johncccc]

PS - And yes I checked the figures and queried on more than one occasion; however, I don't check what boxes the figures are in as I assume that is what I pay a professional for, to make sure the return is filled in correctly.

 

[Ian J]

As a matter of interest, did you approve your Tax Return each year (which by extension, suggests that you have examined it and satisfied yourself that it's correct)?

Really?

Just two weeks ago my accountant asked me to satisfy myself that my personal tax computations were correct and my response was that I didn't understand her workings but was happy to take her word for it

 

[Johncccc]

Essentially, they are asking you to check to their work.

 

[Johncccc]

I just called that TAX office and told them that my accountant screwed up and that I have about 13 years worth of unclaimed tax relief on my pension payments. They have invited me to write in with supporting evidence, this sounds encouraging. Is there any evidence to suggest that this approach has succeeded in the past?

 

[duggimon]

How did you discover the mistake? Are you certain that your contributions are paid gross? Seems a weird way to set up a pension for the self-employed.

 

[Johncccc]

That is a good question, to me, it has always been a "pension", that is what is written all over the paperwork since it was set up in 1988. Apparently, it is an "assured retirement annuity contract" until 48 hours ago I didn't know what that was/is and still don't really know the difference. Assured retirement annuity contracts don't recover the tax relief at source.

 

[duggimon]

You definitely do not have a retirement annuity contract if it was set up in 1998, they stopped being available for new subscribers in 1988.

https://www.pensionsadvisoryservice...ct-based-schemes/retirement-annuity-contracts

 

[Johncccc]

Set up on the 25th March 1988

 

[duggimon]

Then it's not a retirement annuity contract. Or the pensions advisory service are wrong, one or the other.

 

[Johncccc]

My knowledge is growing and I suspect I will learn a lot more about it in the coming weeks. It has never concerned me as it is grown very well and it has been reviewed about 3 times by an IFA.

 

[Johncccc]

It makes me wonder why the provider never invited me to move to a PPP from the RAC, in hindsight it would have been much better.

 

[duggimon]

I'd be more curious as to how they managed to set it up at all nearly ten years after it stopped being available.

 

[Johncccc]

Originally with Save and Prosper, moved to JP Morgan for about 2 years and the past 15 years it has been with Countrywide Assured. Did I type 1998, if I did I meant 1988, three months before they were phased out

 

[duggimon]

I see.

Did I type 1998, if I did I meant 1988, three months before they were phased out

You know you did, you went back and edited both times that you did!

I don't know a great deal about RACs since I was only seven in 1988 but I would definitely double check that the payments are gross and not net because for something aimed specifically at the self employed that is a weird way to arrange it, in my opinion.

 

[Johncccc]

Definitely, there is no tax relief at source on any of my payments.

 

[Scalloway]

Set up on the 25th March 1988

From this website

https://www.pensionsadvisoryservice...ct-based-schemes/retirement-annuity-contracts

It hasn't been possible to take out a new retirement annuity contract since 1 July 1988

Which is after the OP set up his.

 

[SteveHa]

Really?

Just two weeks ago my accountant asked me to satisfy myself that my personal tax computations were correct and my response was that I didn't understand her workings but was happy to take her word for it

Irrespective, what goes on your Tax Return is, ultimately, your responsibility.

Now, it is a fact that if the accountant has PI insurance, and if he was negligent, then a claim may be made, but that isn't a foregone conclusion.

HMRC may, in the circumstances, entertain a claim for overpayment relief, but again, that is by no means a certainty.

 

[UK Contractor Accountant]

Didn't your Accountant ask to see the S226 policy document or ask for a certificate of contributions paid issued by the Insurance Company?

 

[Johncccc]

Update - I received an update yesterday and I am glad to say they have owned up to an error. They installed a new system in 2001 and hen the data was migrated across my pension status was not recorded accurately. The last 4 years are being recovered from the Tax office and the partners have agreed to reimburse me. However, the refund is not what I was expecting. For example in
2002 my annuity payments were £1,575 with tax at 22% I am getting a refund of £346.00 - do you know if this is correct?

 

[SteveHa]

£1,575 x 22% = £346.50. Looks pretty right to me.

 

[Johncccc]

I didn't get 22% on everything, for example in 2008 and 2009 I only received 7% and 12%

2008 £300.00 7% £20.00
2009 £2,500.00 12% £304.00

This was explained as follows

The years that you have highlighted as 20% & 22% are the years when you weren’t in higher rate tax, the other years are when your income has now gone into higher rate tax because of the adjustments or because you were already in higher rate

There is no set calculation to work out the % as is some years you weren’t in higher rate with the grossed up figure and then with the adjustment removing the pension off and putting the annuity on, this then puts you in higher rate tax with a tax saving on the basic rate tax of 20%

None of this makes sense to me, is it worth getting a second opinion?