Incorrect advice given by accountancy firm

[UKContractor2016]

I have a limited company with one director/employee/shareholder and I signed up to a "pay ~£150 per month" for accountancy services.

I have been with this firm for over one year, and I asked them for advice on rental accommodation when I first joined the service. I gave them the circumstances in full, they reviewed the monthly rent payments and came back to me stating everything was fine and I was able to claim for these expenses through the company. As a result I continued the arrangement, and my circumstances have not changed since.

However now that they are about to file my accounts a year later, they have come back to me and said that the information they initially gave me was incorrect and I will have to repay the payments for accommodation through a directors loan offset through a dividend payment for this year.

As the payment threshold for dividends are only £5k, this means I will be unable to take out a further dividend in 2016 and will have to pay a hefty personal tax bill at the start of 2017.

What recourse do I have in this situation?

[Old Greg]

I have a limited company with one director/employee/shareholder and I signed up to a "pay ~£150 per month" for accountancy services.

I have been with this firm for over one year, and I asked them for advice on rental accommodation when I first joined the service. I gave them the circumstances in full, they reviewed the monthly rent payments and came back to me stating everything was fine and I was able to claim for these expenses through the company. As a result I continued the arrangement, and my circumstances have not changed since.

However now that they are about to file my accounts a year later, they have come back to me and said that the information they initially gave me was incorrect and I will have to repay the payments for accommodation through a directors loan offset through a dividend payment for this year.

As the payment threshold for dividends are only £5k, this means I will be unable to take out a further dividend in 2016 and will have to pay a hefty personal tax bill at the start of 2017.

What recourse do I have in this situation?

First thing I would do is establish whether the rental accommodation is an allowable expense. Read up on this yourself and don't rely 100% on an accountant.

[Jessica@WhiteFieldTax]

Your first recourse is, of course, to vote with your feet.

At law any recourse is likely to be based on putting you into the position you would have been in had the alleged error, if proven, hadn't occurred.

First question, if you had received different advice, what would you have done differently?

Secondly, what would have been the tax differential of that course of action versus where you are now?

From there the tax differential plus any interest and penalties should be the figure on which any claim is based.

Of course, it may be you would have taken no different action - eg in your case you took the same contract, paid the same rent, in which case your claim would not cover the extra tax you are faced with now, merely interest, penalties and any incidental costs.

Practically the first course of action is to establish your complaint, and a provisional quantification of your loss, with your accountant and ask them how they propose to make sure you are not out of pocket.

HTH

[missinggreenfields]

As the payment threshold for dividends are only £5k, this means I will be unable to take out a further dividend in 2016 and will have to pay a hefty personal tax bill at the start of 2017.

What prevents you from taking a further dividend this year?

[Fred Bloggs]

If the accountant is who I think it might be, then that could be just the start of your problems quite frankly.

[teapot418]

First thing I would do is establish whether the rental accommodation is an allowable expense. Read up on this yourself and don't rely 100% on an accountant.

I'd agree with this. Why did they think it was allowable, but do not now? Did something change, or did you give them further info they didn't previously have?

Ask them the basis of their advice, and why it changed.

I can think of a number of reasons why they may have thought it was allowable, but additional info or even a contract renewal would mean it's not, but I'm not going to speculate.

[UKContractor2016]

Thanks all for the responses.

The only circumstances that changed were that my original assigned "accountant" left the company and I was assigned a new accountant

I have absolutely made decisions based on their advice e.g. to continue renting the same property, to put it through the company as a business expense (which I wouldn't have done if this was disallowed)

[craigy1874]

Lets have the details of the rental expenditure and see if we can help.

[TheCyclingProgrammer]

What was the purpose of the rental?

[teapot418]

Thanks all for the responses.

The only circumstances that changed were that my original assigned "accountant" left the company and I was assigned a new accountant

I have absolutely made decisions based on their advice e.g. to continue renting the same property, to put it through the company as a business expense (which I wouldn't have done if this was disallowed)

If the rental was necessary (wholly and exclusively) for your business, then it should be allowable.

The sort of thing that might blow that out the water is:

- You don't have another permanent home
- You've rented out your permanent home, so can't live there
- You've moved your family to the rented property (i.e. relocated)
- You are expecting to be there more than 24 months
- The rented property is no closer to the workplace than your permanent home

Random, unqualified strangers on an internet forum can only guess. I'd suggest you talk it through with your accountant and find out why they believe it's not allowable.