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Top Five Professional Indemnity Claims for Accountants in 2018

Top Five Professional Indemnity Claims for Accountants in 2018

Another year has flown by and it is that time of year where we take a look back at the claims landscape for accountants over the past 12 months with a view to what may be facing us on the horizon.

The top 5 claims (by type) heavily features many of the usual suspects and as such will not be earth shattering news. In order of volume (not severity) the following claim types account for the vast majority of claims against accountants that we have dealt with over the past 12 months:

1. General Accountancy

Some of the most common issues are a failure to register for VAT or file tax returns within the prescribed timeframe or missed deadlines for research and development (R&D) tax claims.

2. Tax

There has been no let-up in the aggressive HMRC strategy with regards to clamping down on tax avoidance/mitigation schemes. The tax mitigation claims involving film finance have largely abated (due to limitation) but there has been a marked increase in claims in relation to Employee Benefit Trusts (EBT) and Employer Financed Retirement Benefit Schemes (EFRBs).

Similarly, claims arising out of advice on Enterprise Investments Schemes (EIS) and Business Property Relief (BPR) during corporate transactions have been on the increase. The claims largely stem from a failure to advise properly on the qualifying criteria for the various schemes. Unfortunately, the issues tend to be relatively complex and difficult to unravel.

3. Insolvency

This year has seen no let-up in the volumes of claims in this area. The scrutiny continues to remain on liquidators who face claims from creditors, former directors and, on occasion, new insolvency practitioners. The allegations often centre on the sale of assets and subsequent distribution.

Whilst ever there are challenging trading conditions and the pace of business failures continues then this claim type will invariably continue to figure in the top 5.

4. Audit

These claims continue to figure heavily, most often relating to alleged failures to detect frauds by employees or company secretaries. Occasionally we see attempts by third parties to bring claims against auditors which will put the spotlight on whether appropriate limitations on liability have been adopted by the auditor.

5. Transactional

This is another common claim type which has featured in the Top 5 for many years. Claims arise around business valuations but also from tax advice relating to the treatment of share sales and associated matters.

Mitigating the Risk

The good news is that there are some very simple ways to mitigate the risks of some of the above claims arising.

Record Keeping

Around 60% of the total claims that we handle are driven in some way by poor record keeping. At best, good records in the form of accurately recording instructions and the scope of your services and contemporaneous file notes can prevent a claim arising in the first instance. At worst, the lack of any supporting evidence backing up your position will make it extremely difficult to defend the claim.

Credit Control

Around 35% of claims stem from a complaint about perceived billing issues/charges. A good approach to credit control and a clear process for estimating fees and revising these as necessary will pay dividends. Not many of us like surprises when it comes to money, (perhaps with the exception of perhaps a lottery win!) and thus it is very common indeed for a claim for outstanding fees to be met by a counter-claim – attack is the best form of defence.

On the horizon

Cyber-attacks and Fraud

The words GDPR, data protection and cyber-attack are now common place. Claims arising from employee infidelity and cyber-attacks are increasing at an alarming rate. We expect this area to figure within the top 5 within the next 12 to 24 months. The good news is that it is not just accountants who are at increasing risk in this area but all professional service businesses. It is important to be as prepared as possible for the ever increasing threats and we would urge you to speak to your own professional advisers to ensure you are adequately protected and prepared to face the risks.

Probate

Since 2014 ICAEW chartered accountants have been able to provide probate services directly to consumers subject to them obtaining the appropriate probate licence. We have not yet seen an influx of claims in this area as they will take a while to filter through in any event but this is an area which has the ability to drive volumes of claims as we have seen in the solicitors’ arena. However, this should not be a deterrent to conducting this type of work so long as there are clear processes in place and the work is being conducted by people with the relevant expertise, experience, and licence.

If you would like to discuss any of the above or your Professional Indemnity Insurance requirements in more detail, please contact Bluefin Professions on 0345 894 4684 or visit www.bluefinprofessions.co.uk