Accountant limitation of liability question

**northernladuk** · 6 February 2010, 00:01

[QUOTE=blacksheep;1067394]

If they screw up my accounts, PAYE or Corporation tax, they can go "here's your £1500 back, it's your problem now".
[QUOTE]

I make no claims I know much about this but I don't understand the comment above. What is this in relation to? From what I see the accoutants are talking about their liability should they cockup. If they screw up your finances and become liable for their mess they will only be held for 5k/fee of that mess.

I can't see where it says they can give you your money back. They will always be liable and it will always be their problem, they just wont pay out an unlimited amount. Have to say the 5k or the fee seems a bit tight as this is only £1500. Doesnt seem very much when then can be responsible for 10's of K of your money.

The idea that if they cock up they can get out of it by just giving your money back is ludicrous. It's like saying some pays a builder £50k to build a house. It falls down and kills your entire family so he gives ur £50k back and says tough.. No way will that stick.

**Clare@InTouch** · 8 February 2010, 12:39

I would advise you to check if it's simply that they will only pay up to £5,000 themselves and then allow their insurers to pay out anything in addition to that.

**blacksheep** · 9 February 2010, 15:29

Thanks a lot for the replies.... will go back to them and see what they say

**MPwannadecentincome** · 9 February 2010, 16:38

shouldn't the accountancy firm have liability insurance?

like wot us contractors 'ave to 'ave?

**Swamp Thing** · 11 February 2010, 13:33

We are talking about 2 different things here, contractual liability and insurance.

The supplier will want to limit their liability to annual fees, which is fine when you’re talking about large contracts. This liability will mostly be performance-related (but by law cannot exclude claims for bodily death/injury/damage to property). Smaller contracts need more realistic liability levels, and typically 5 x the annual fees is realistic. So in this example it would be £7,500.

Beyond this, of course insurance (typically PI) can pay out more, but the supplier will try to avoid falling back on insurance, since it will affect his claims history.

If you can negotiate £5-6K as a liability cap, take it.

**jetrimby** · 17 February 2010, 12:53

It's been creeping in to larger audit contracts etc though not sure how sucessful it has been. It must be reasonable and fair (though business to business contracts are not covered by much of the legislation protecting the "public" from unfair contracts) If a member of a registered body (ICAEW for instance) will have to have insurance and it will be for much larger sum than this.

Own opinion is that I can understand the idea BUT seems very unprofessional. If I spend 2 hours giving inheritance tax advice I could cock up the family tax bill be £100,000's!! But then can only sue me £190 ?? Even with simple company accounts penalties and fines from Revenue and Companies house can easily exceed the annual fees. I'd get it changed to a sensible figure (say £10k if only normal company works) and/or look elsewhere.

**XLMonkey** · 17 February 2010, 23:10

Originally posted by blacksheep View Post

"Limitation of liability"
...this firms aggregate liability, whether to your company or any other third party of whatever nature, whether in contract, tort or otherwise...(lots of other inclusions) shall not exceed £5000 or the fee, whichever is lower.

Is this standard?

Nope, its not.

Contract liabilities fall into a number of different categories, including:
- statutory issues (e.g. health & safety). Regardless of what it says in the contract, if a supplier does something that causes, e.g. physical harm, then they are liable. Each company has to keep insurance to cover this sort of issue, and is usually bundled into their employer's liability insurance. This kind of liability cannot be avoided by words in the contract, as the courts set it aside if there is a claim.
- professional competence. If they don't do their job to an appropriate standard, then they may be liable. Professions like lawyers, accountants, doctors are usually bound to operate to minimum standards of competence. So are builders, plumbers, electricians and any of the skilled trades.

This clause seeks to limit their liability in the second area: professional competence. Its well dodgy, since you may suffer direct losses as a result of poor advice that are far in excess of the accountancy fees.

What is usual is for the contract to set a more meaningful limit (e.g. 500k for a small-ish business), and an obligation on the accountant to have professional liability insurance so that if there is a claim, then you would be able to recover the losses from their insurance company.

**XLMonkey** · 17 February 2010, 23:17

Originally posted by Swamp Thing View Post

We are talking about 2 different things here, contractual liability and insurance.

Erm, sorry, but we're not.

Insurance is taken out to cover a potential liability. It won't cover liabilities that don't exist. The insurance company will only pay out for losses that the supplier is liable for.

So, if the limit of liability is, say, £5k, then that's the most that you can claim for breach or repudiation of contract. Its also the maximum that the insurance company will pay out (with the exception of the death/injury examples that you mentioned).

The reason people insist on insurance is so that they can have a much higher limit of liability for things like professional competence. That way, if the size of the claim would put the supplier out of business, they can still recover their losses from the insurance company.

**blacksheep** · 26 February 2010, 13:17

update:

I sent an email off to my usual contact at the accountant querying this.

Yesterday, got a good email from one of their directors, saying that no-one had queried their liability clause before, but that they would be happy to accept a greater degree of responsibility/liability, and would not be looking to dump me as a customer fobbing me off with a fee refund if they made an error with my accounts.

Result!!!

Accountant limitation of liability question