Who pays a penalty when the accountant files late

Q: Can the client get the penalty cancelled because the accountant was at fault?

HMRC penalties. For late returns, paragraph 23(2)(b) of Schedule 55 to the Finance Act 2009 says that relying on another person is not a reasonable excuse unless the taxpayer took reasonable care to avoid the failure. HMRC's Compliance Handbook at CH160700 says a person cannot claim a reasonable excuse merely because they delegated a task and the other person failed. HMRC expects the client to have explained what was needed, set deadlines and checked on progress. A client who did all of that may still succeed; the tests and case law are set out in accountant filed late: is that a reasonable excuse. Companies House penalties. The test is stricter. Companies House says an appeal will only succeed if the circumstances are exceptional, and that the registrar has very limited discretion not to collect a penalty, for example where a fire destroys records a few days before the deadline. Its list of reasons unlikely to succeed on their own includes that you relied on your accountant and that your accountant was ill. If an appeal is rejected the company can go to the Senior Casework Unit and then ask the independent adjudicators to review it; see appealing a Companies House late filing penalty. In practice, then, an accountant's mistake usually leaves a valid penalty in place, and the argument moves to who should bear its cost.

Q: What does this look like in practice?

Illustration only. A private company's accounts are due on 30 June. The director sends the records in February and approves the final accounts on 10 June. The firm's engagement letter says it will file them. Nobody presses submit, and the accounts reach Companies House on 20 August. The company receives a £375 penalty because the accounts were more than 1 month late. An appeal saying the accountant forgot is unlikely to succeed. The firm accepts the error, records it, notifies its insurer as its policy requires and, since £375 is below its excess, reimburses the company. The penalty remains on the company's record. Change the facts: the director sends the records on 25 June, ignores two written warnings that the deadline cannot be met, and the accounts are filed on 20 August. The penalty is still the company's, and this time the firm has a strong answer to any request to pay it.

In law the penalty belongs to the client. HMRC charges the taxpayer and Companies House charges the company, even when the accountant was the one who missed the deadline, and blaming the accountant rarely gets the penalty cancelled. Whether the client ends up out of pocket depends on a separate question: whether the accountant broke its contract by failing to file work it had agreed to file, after the client had done their part.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

Whose penalty is it in law?

HMRC’s overview of penalties for agents says that when an agent acts for a client, the client still has responsibility for their returns, calculations and payments. An agent’s authorisation lets HMRC deal with the agent, but liability for penalties for late returns, late payment or errors legally remains with the client. The penalty notice, the appeal and any payment are all in the client’s name.

Companies House works the same way. Section 453 of the Companies Act 2006 makes the company liable to a civil penalty if its accounts are not filed in time, in addition to any liability of the directors under section 451. Section 451 makes it an offence for every director in office at the deadline, with a defence only if the director proves they took all reasonable steps to make sure the accounts were filed on time. Companies House guidance tells directors that they are personally responsible for delivering the accounts before the time allowed runs out, and that delivery means actual receipt at Companies House in the correct format.

The accountant is not a party to either penalty. Separate rules can penalise advisers for their own conduct, covered in whether HMRC can penalise an agent for a client’s errors, but a missed deadline is not one of them.

Can the client get the penalty cancelled because the accountant was at fault?

HMRC penalties. For late returns, paragraph 23(2)(b) of Schedule 55 to the Finance Act 2009 says that relying on another person is not a reasonable excuse unless the taxpayer took reasonable care to avoid the failure. HMRC’s Compliance Handbook at CH160700 says a person cannot claim a reasonable excuse merely because they delegated a task and the other person failed. HMRC expects the client to have explained what was needed, set deadlines and checked on progress. A client who did all of that may still succeed; the tests and case law are set out in accountant filed late: is that a reasonable excuse.

Companies House penalties. The test is stricter. Companies House says an appeal will only succeed if the circumstances are exceptional, and that the registrar has very limited discretion not to collect a penalty, for example where a fire destroys records a few days before the deadline. Its list of reasons unlikely to succeed on their own includes that you relied on your accountant and that your accountant was ill. If an appeal is rejected the company can go to the Senior Casework Unit and then ask the independent adjudicators to review it; see appealing a Companies House late filing penalty.

In practice, then, an accountant’s mistake usually leaves a valid penalty in place, and the argument moves to who should bear its cost.

Run an accountancy or bookkeeping practice? Solar Protect runs fee protection schemes for practices, so the cost of dealing with an HMRC enquiry into a client is covered rather than written off.

See how our accountant schemes work or call 01795 841 310.

When does the accountant have to make good the loss?

A firm supplying a service in the course of business must carry it out with reasonable care and skill. For business clients that term is implied by section 13 of the Supply of Goods and Services Act 1982; for consumers, section 49 of the Consumer Rights Act 2015 treats every service contract as including it. Missing a filing deadline the firm had agreed to meet, when the client had supplied everything needed in time, is the clearest kind of failure to take reasonable care.

Three questions usually decide the matter:

Was filing in scope? If the engagement letter says the firm will prepare and submit the return, the firm owns the deadline. If it only prepares accounts for the directors to file, or the client files their own return from the firm’s figures, it may not. This is why service schedules should name each filing.
Did the client do their part? Records delivered late, queries left unanswered or approval given at the last minute shift responsibility back to the client, especially if the firm warned in writing that the deadline was at risk.
Does the letter limit liability? Some letters cap or exclude certain losses; whether that holds depends on the rules in limiting liability in engagement letters.

Claims are subject to time limits. Under the Limitation Act 1980 an action founded on simple contract, or on tort, cannot be brought after six years from when the cause of action accrued (sections 5 and 2).

Why can the cost keep growing?

Most filing penalties rise with time, so how quickly the failure is spotted and put right affects the bill. HMRC’s Self Assessment penalties are an initial £100, then £10 a day after 3 months up to £900, then the greater of 5% of the tax due or £300 after 6 months and again after 12 months. Companies House penalties for a private company or LLP are £150 for up to 1 month late, £375 for more than 1 month and up to 3 months, £750 for more than 3 months and up to 6 months and £1,500 after that, and are doubled if accounts are filed late in 2 successive financial years. A client who learns of the failure and does nothing for months may find that only the first slice of the penalty is fairly the accountant’s.

The timing also counts for the client’s appeal: under paragraph 23(2)(c) of Schedule 55, an excuse only continues if the failure is remedied without unreasonable delay after the excuse ends.

Can the accountant simply pay the penalty?

Yes, but paying it does not move the liability. The penalty stays on the client’s record, so a second late filing by the company still counts towards the Companies House doubling, and HMRC late filing points or follow on penalties are still the client’s.

Before paying, a firm should check its professional indemnity policy. The ICAEW minimum approved policy wording requires the insured to notify insurers in writing as soon as reasonably practicable of any circumstance that may give rise to a claim, and not to admit liability for or settle any claim without the insurers’ written consent, which is not to be unreasonably withheld. Any excess in the schedule is borne by the firm, so small penalties are often paid by the firm itself. See whether an accountant should admit a mistake to a client.

On tax, the client cannot deduct the penalty in its own accounts: HMRC’s Business Income Manual at BIM42515 says a fine for breaking the law is not allowable, and BIM42520 lists tax penalties as non deductible. For the firm, BIM45515 says damages paid as a result of professional negligence are allowed as a deduction, with any sums recovered under an indemnity policy treated as trading receipts.

What if the firm refuses to pay?

The first step is the firm’s complaints procedure. ICAEW, for example, expects a complainant to raise the issue with the firm in writing and allow at least 28 days for a reply before ICAEW will look at it. ICAEW is clear that it does not operate a general compensation scheme and has no power to resolve fee disputes, award compensation for losses or require a firm to settle a contractual disagreement. A client who wants money back may need to consider civil action, and ICAEW warns not to wait for its process to finish before taking legal advice because time limits may apply. More on handling complaints is in client complaints procedures for accountants.

What does this look like in practice?

Illustration only. A private company’s accounts are due on 30 June. The director sends the records in February and approves the final accounts on 10 June. The firm’s engagement letter says it will file them. Nobody presses submit, and the accounts reach Companies House on 20 August. The company receives a £375 penalty because the accounts were more than 1 month late. An appeal saying the accountant forgot is unlikely to succeed. The firm accepts the error, records it, notifies its insurer as its policy requires and, since £375 is below its excess, reimburses the company. The penalty remains on the company’s record.

Change the facts: the director sends the records on 25 June, ignores two written warnings that the deadline cannot be met, and the accounts are filed on 20 August. The penalty is still the company’s, and this time the firm has a strong answer to any request to pay it.

What mistakes cause disputes?

Engagement letters that say “we will prepare your accounts” without saying who files them.
No record of when records arrived or when the client approved the return.
Assuming that agent failure will get the penalty cancelled, and appealing on that ground alone.
Paying or promising to pay before telling the insurer.
Letting a late return sit for months after the problem is found, so daily and percentage penalties build up.

Solar Protect runs fee protection schemes for accountancy and bookkeeping practices. See how our accountant schemes work or read fee protection schemes for accountants.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.