What sort of advice do you give? Specialist, Compliance or Dangerous? (part one)

Oct 1, 2007 | Professional Negligence, Tax related

What would be the impact on your practice if a client alleged that you had been negligent? It’s not something that anyone wants to consider, of course.Often such allegations lead to complaints that result in investigations and disciplinary proceedings, or a professional indemnity insurance claim – whether justified or not.

All such eventualities invariably result in the poor adviser incurring significant costs, having sleepless nights and suffering significant disruption to their day to day practice. Of course no one really wants to think about any of this any more than they want to think about the need for effective computer back-up procedures. Much the same thought process is required. What can we do to reduce the risks we run and still provide a commercial, client-centred and profitable professional practice?

Over the last year I have been all around the UK lecturing to accountants and tax advisers on the subject of How to avoid tax related PI claims. It’s quite clear that a great deal of what I tell them gives cause for concern (and action). Positive feedback suggests that my insights and explanations will help reduce the incidence of such claims in the future.

I’ve recently realised that most accountants fall into one of 3 categories when it comes to the provision of tax advice to their clients. I would expect that similar categories arise in other professions too:

1 – Specialist tax advisers – These are the accountants who have a depth of tax knowledge in one or more key areas. There are also a handful of accountants who really seem to have an encyclopaedic knowledge of all things tax. They and most other specialist tax advisers I know are also able to admit what they don’t know. Specialist tax advisers are aware of the dangers of pretending to understand more than they really do.

2 – Compliance tax advisers – These accountants are very familiar with most compliance tax related issues. Their colleagues and clients may even think of them as tax experts but, like all good specialist tax advisers, they are aware of their limitations. Every now and then a client needs help or advice as regards an issue with which the accountant is not that familiar as it doesn’t crop up very often. When this happens the accountant seeks specialist tax support.

3 – Dangerous tax advisers – These are the accountants who advise their clients on tax matters even though they don’t really know the answer. Either they guess or they rely on their memory of what happened last time the subject came up. The self assessment system facilitates a continuation of this approach such that the adviser continues to assume that all is ok and to provide similar out of date or incorrect advice to clients. It can be some years before the issue comes to light.

One of the reasons I use the word ‘dangerous’ here is that such advisers may be what has been termed ‘unconscious incompetents’. They don’t know what they’re getting wrong. They will defend the indefensible and still think they can make HMRC go away merely by strength of argument. Indeed they even manage to do this sometimes and thus further their self belief that they know what they’re doing.

I will return to this theme in tomorrow’s posting on this blog.

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