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professional responsibility to new client

urgent action required before formal engagement procedures complete

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I have an existing client (personal tax) who was trying to deal with his late brother's intestate estate, which I intially declined to deal with, as I was very busy, and worried it might be too complex. He enlisted the help of a solicitor friend of his, who eventually realised he was not competent to deal, so they mutully agreed to pass the papers over to an ICAEW firm the solicitor knew of. I have seen at least 2 emails from the solicitor to this new estate accountant firm, (I will refer to as EA), both expressing concern that late submission penalties might be pending, and could anything be done in mitigation. The second was accompanying the relevant papers, showing disposals of 2 properties, at which point, there was a month to go before the 31st July deadline. Several years later, in desperation, my client persuaded me to complete the work, which I have now done. We are now at the point where we realise that £6K of late submission penalties have been incurred, which could have been avoided if the EA had acted promptly when they were first approached. (The client had already paid sufficient tax on account to cover the tax liabilities). I feel that it was completely obvious that they were being asked to consider mitigation of penalties, albeit at that time, certain information was missing to make a complete submission. My client has asked me to assist him in making a claim against EA in this respect. I have sent them an email, referring to historic emails, and asked for their response. They have dragged their heels, the responsible partner/manager has since left the firm, and have now sent me a chronology of events from their files, which does not really address the main issue, but seems to infer that since they did not receive the relevant money laundering details until 8th August, they could not be held responsible. I cannot readily find anything to help me ascertain what would be considered to be the responsibilities of EA in these circumstances i.e. new appointment referred by a fellow professional, where urgent action is probably required prior to the formal engagement process having been completed. For my part, I feel very strongly that I would have attempted to ascertain the likely penalty situation, especially as it had been drawn to my attention by the referee solicitor, and made some sort of protective submission to HMRC in the month I had available, despite not having had time to carry out the necessary compliance matters in advance. (The compliance matters were subsequently completed between EA and my client, and CGT computations were prepared by EA, though my client was unable to entirely agree them, so they were never submitted by EA, who sent my client a fee for their work, which he paid.) What do other readers think, and can anyone refer me to a specific passage in the ICAEW code of ethics that might cover such a scenario. Many thanks.

Replies (21)

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By Paul Crowley
03rd Dec 2021 16:43

Keep well clear
Solicitor friend intoduced
Missing information right at the beginning
AML not sorted quickly enough to file on time
Client refused to agree tax computations and returns (Any idea why?)
Do you really think you have the full picture, or just one person's clouded view

Why waste time complaining to the Institute? What do you expect to achieve?
Clearly client has not gone through the firm's complaints procedure.
Chances are that client who refused to agree the computation and submission of the return knows he has contributed to the problems.
Tell client to make formal complaint to the firm
You assisting him to short cut the system and complain to ICAEW will not look good

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Replying to Paul Crowley:
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By Leywood
03rd Dec 2021 17:21

[quote=Paul Crowley] ''Keep well clear''

I said to myself 'dont get involved' just before I read that you had emailed the EA firm.

Dont be persauded for a second time by this client, especially in something that could end up in litigation against EA. Your client needs to follow their complaint processes.

You dont say the date the engagement letter was signed and if it silent on the ID issues, although I wouldnt be acting until I had everything boxed off, but probably would be chasing hard for such knowing deadlines were imminent, but then Ive always tried my best to help folk. Why was there a delay in supply when there was an urgency?

You initially passed, sounds like thats exactly what the solicitor should have done. How much time was wasted by not doing so, plsu the ID delays. Some of this sounds like of their own making by not passing this on to someone who could deal with it in the first place.

Please use paragraphs, it was giving me eyestrain trying to read it all in one lump.

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By John R
03rd Dec 2021 17:09

In case you were not aware, your company name appears above, so this is not anonymous.

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Replying to John R:
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By ladymoth
03rd Dec 2021 18:22

Yes, thank you. I noticed that too late. Not used to posting on here, and now I don't seem able to amend/delete it...., not even in my Account....

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Replying to ladymoth:
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By Southwestbeancounter
05th Dec 2021 15:01

Send a message to Accounting Web they will sort it out for you.........

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Replying to Southwestbeancounter:
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By ladymoth
05th Dec 2021 16:30

Thank you - I have.
Never imagined this would happen though! - don't understand why the default position is apparently for it to appear, rather than not.

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Replying to ladymoth:
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By Paul Crowley
05th Dec 2021 19:26

I think the mods are too busy on the recently closed articles

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By ladymoth
03rd Dec 2021 18:31

Thank you to Paul Crowley and Leywood.
I think I will take your advice, though I was not planning on making a formal complaint to ICAEW, I just wanted to know what EA (or any firm) should have done in these circumstances, so I could assist client in attempt to get redress, which I do feel is justified. The computations were not approved because they were draft, and required amendment, pending additional details. The case was somewhat complex in certain respects - I am confident in the integrity of my client - difficult to explain all the nuances of the circumstances succinctly here.

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Replying to ladymoth:
Stepurhan
By stepurhan
04th Dec 2021 09:47

ladymoth wrote:
I was not planning on making a formal complaint to ICAEW
EA had no contract with you, so you have no basis for making a complaint to ICAEW anyway. If events proceed such that a complaint seems advisable, it is up to your client to make that complaint.
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ALISK
By atleastisoundknowledgable...
03rd Dec 2021 19:14

FWIW I probably would have done the work whilst waiting for the ID, insisting that I had the onboarding completed before submitting anything.
‘Internal’ work before onboarding complete, but nothing ‘external’.

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Replying to atleastisoundknowledgable...:
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By ladymoth
03rd Dec 2021 19:32

Yes, I agree. I feel the EA made no attempt to actively mitigate the situation, which they had been alerted to as part of their initial remit, (which was one of the main reasons why they were approached) and they did have 31 days to do something useful, and save the client £000's, even if they couldn't quantify it precisely in that time. I would feel that I had not acted in the best interests of my (albeit very new) client in those circumstances.

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By I'msorryIhaven'taclue
03rd Dec 2021 20:22

ladymoth wrote:

He [your client] enlisted the help of a solicitor friend of his, who eventually realised he was not competent to deal, so they mutually agreed to pass the papers over to an ICAEW [estate accountant] firm the solicitor knew of [which you, OP, have named "EA".] 

So your client's solicitor and the "EA" are to all intents and purposes cast in the same boat. If I read you correctly, the former recommended the latter (with all the attendant duty of care repercussions that such an action entails). Which rather leaves you up against a joined force, one of whom is a solicitor. Hands up all those who know better than to square-up to solicitors. P.S. Sorry for not using paragraphs!

Swallowing one's pride is oft a difficult pill. But IMHO you're being suckered into a scrap with the school bully. Take it on the chin, and move on. Once again, apologies for the wayward paras and, additionally, the mixed metaphors.

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By Mr_awol
03rd Dec 2021 20:45

Your client has a solicitor friend, but has asked you as his accountant to assist with a legal claim?

Surely their first point of call would be the solicitor friend - unless they (rightly IMHO) told your client not to be a dick.

I also disagree that ‘EA’ should have submitted work without following the correct AML procedures just because the issue had been sent to them fairly late. Personally I like to think I’d have pushed through the process and made sure and delay wasn’t down to me - but the client needs to play their part in that too.

There may be a case that ‘EA’ say on this longer than necessary but TBH on the limited facts here I’d be surprised if there was a claim they couldn’t either defend, or perhaps wriggle out of even if they are in the wrong (when overall I get the impression the client is at least as culpable)

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Replying to Mr_awol:
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By Tax Dragon
04th Dec 2021 10:04

I'm not seeing any fault on EA's part at all here. The matter had been too complex for an accountant and a solicitor to deal with over many months, but EA was supposed to deal with in a few days, without full information and before being engaged.

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By bernard michael
04th Dec 2021 09:59

Whose fault is that the compliance procedure was not completed
EA being slow in asking for relevant information
OR
Client not complying timeously
OR
Both the above

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By fawltybasil2575
04th Dec 2021 13:37

@ ladymoth (OP).

Having read your initial question several times, I could respond at enormous length (many established AWEB members will be relieved that I do not propose to do so). I shall seek to be relatively brief.

To answer your closing question, albeit not fully, a major problem about your well-intentioned desire to assist your established client is your proposed intention to effectively act as that client’s litigation solicitor [or, at the least, the danger of your being accused (rightly or wrongly) of so acting, by your client, by any of the other parties in this convoluted case, or by ICAEW].

Frankly, and I am sure that you have many excellent qualities as a member of ICAEW, I feel that your main emphasis should be in appealing the £6,000 Penalties if necessary (I am not entirely sure whether such Penalty Notices have been already been issued or are simply contemplated by you). Handled adroitly, I believe that such Penalties can be avoided by judiciously worded submissions to HMRC: if you are uncomfortable with dealing with such submissions, I would recommend your delegating to a taxation specialist.

If, as should be the case, those Penalties are avoided, then of course the potential claim against the accountant falls to dust (subject possibly to a claim being made – you should not deal with such claim yourself – against the accountant).

A few extracts from your question cause me disquiet:-

(i) “Several years later, in desperation, my client persuaded me to complete the work, which I have now done.”

(ii) “My client has asked me to assist him in making a claim against EA in this respect. I have sent them an email, referring to historic emails, and asked for their response”.

(iii) “For my part, I feel very strongly that I would have attempted to ascertain the likely penalty situation, especially as it had been drawn to my attention by the referee solicitor, and made some sort of protective submission to HMRC in the month I had available, despite not having had time to carry out the necessary compliance matters in advance.”

Re (i), please clarify the timing of the request, by the client, for you to “complete the work” (in relation to the time limit for submission of the form).

Re (ii), this implies that you have already agreed to carry out work which falls within the danger area per my second paragraph above.

Re (iii), you would be exposed to allegations that you fail to comply with ICAEW ethical requirements.

I would recommend that you immediately advise your client that you are, as a member of ICAEW, precluded from personally acting as their agent in taking action against the other accountant, and recommend that (if the “appropriate time” arises – see below) they engage a litigation solicitor to request their advice on whether the client has grounds for action: and assure the client that you will provide that solicitor with whatever information you hold to assist them in any such action (care should be exercised in wording that assurance).

Frankly, on the basis of the information in your initial question, I suspect that the solicitor will caution against taking any such action.

[The “appropriate time” above means of course at the point in time at which the Penalties have been successfully appealed, or have been established otherwise as not being payable].

Overall, I fully appreciate your honourable desire to assist your client. In so doing, however, I believe that you should draw an equation between (i) such desire and (ii) several inherent dangers to yourself personally, including:-

(i) The risk that you will be accused of acting outwith your engagement terms; and/or acting outwith your professional abilities,

(ii) Your receiving an aggressive repudiation stance by the other accountant, and/or by PI insurers acting on their behalf.

(iii) Your client’s accusation that you have made an improper judgment call in robustly pursuing the other accountant, when you should instead have concentrated on ensuring that your client avoided the Penalties if at all possible.

As ever, and in intending no offence, one should always consider whether the entire matter is best attended to by another accountant more experienced in this field, and/or by a taxation specialist.

Basil.

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Replying to fawltybasil2575:
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By More unearned luck
04th Dec 2021 14:15

Misled by your first para, I've read your post. I agree the claimant must do his best to mitigate his lost first, ie by appealing any penalty assessment. I sometimes think this is the reason why hopeless looking appeals are taken to the FTT - to demonstrate to the court or defendant's insurer that the claimant has done his utmost to mitigate.

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Replying to fawltybasil2575:
7om
By Tom 7000
07th Dec 2021 09:58

I thought you said you wouldnt reply at length....

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By ladymoth
04th Dec 2021 16:32

Many thanks to all who have responded.
I feel that some of you assume that I am in the throes of an acrimonious professional claim against the EA on behalf of my client, and about to report them to ICAEW.
My use of the phrase “My client has asked me to assist him in making a claim against EA…” was perhaps somewhat misleading in this respect, and I acknowledge that it would have been wiser to have drafted the email for my client to send himself. I do feel that that the EA could have acted more promptly in the time available, to make a protective submission, and despite what I have previously said, I also readily acknowledge that this should be done AFTER carrying out the proper engagement procedures, which was potentially possible in the timeframe.
I have simply asked the EA firm to justify their inaction in this respect, and in view of their rather lame response, wanted to hear others’ views on how they would act in such circumstances, when time is of the essence, but your professional knowledge of the penalty system tells you that significant penalties could potentially be avoided by some swift action.

I think it unlikely that my client will have the appetite for any formal complaint procedures, and I certainly don’t, but that doesn’t stop me from asking a legitimate question of another professional firm, who I imagine would be keen to simply confirm they acted in a professional manner, if that were the case. (My firm is ACCA, not ICAEW).

To answer Fawltybasil 2575, my client approached me to do this work in late autumn 2020, and I submitted 4 Returns in January 2021, 3 of which were late, and the 17/18 Return was the one which carries the material late submission penalties, notice for which was subsequently issued. I have already submitted a protective appeal to HMRC, but felt that it was likely to be unsuccessful, as HMRC would argue that my client was professionally represented at the time, hence why I wanted to get EA’s side of the story.
I am grateful for all opinions and advice that everyone has taken the time to freely give, which will help inform what I do next.

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By Calculatorboy
04th Dec 2021 22:02

Why run around for the client and give yourself a heart attack in the process?

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@enanen
By enanen
07th Dec 2021 10:32

This is not your issue to deal with.

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