Top five professional indemnity claims
Professional indemnity experts Bluefin set out which claims are made most often against accountants and what they can do to mitigate those risks.
Another year has flown by and we have taken a look back at the claims landscape for accountants in 2018 with a view to look at ways to mitigate these risks.
The top five claims by type heavily feature 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 majority of claims against accountants that we dealt with during 2018:
- 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.
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 (EBTs) and employer financed retirement benefit schemes (EFRBSs).
Similarly, claims arising out of advice on enterprise investments schemes (EISs) 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.
2018 saw no let-up in the volumes of claims in insolvency. The scrutiny remains on liquidators who face claims from creditors, former directors and, occasionally, new insolvency practitioners. The allegations often centre on the sale of assets and subsequent distribution.
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.
Another common claim type has featured 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 there are some simple ways to mitigate the risks of some of the above claims.
- Record keeping
Around 60% of the total claims 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, 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.
To discuss the above or your own PI requirements, contact Bluefin Professions on 0345 894 4684 or visit www.bluefinprofessions.co.uk