When can I exercise a lien?
A lien is when you hold on to someone else’s property against a debt due to you.
Types of lien
There are two types of lien:
- A ‘general’ lien is when you hold on to any property against any debt. Unless expressed in contract, accountants do not have a right of general lien.
- A ‘particular’ lien is when you hold on to speciﬁc or particular property against a debt due in respect of that property, such as a client’s records against fees charged for work done using those records. There are four conditions for the exercise of a particular lien:
- The documents retained must be the property of the client, not a third party.
- The documents must have been obtained from the client (i.e. not by accident or improperly).
- Work must have been done on the documents and a fee note raised.
- The fees for which the lien is exercised must relate to that work.
The work in question must have been done at the client’s request and the client must know or be able to calculate the sum due.
You shouldn’t exercise a lien when inappropriate, such as during ongoing arbitration, legal proceedings, or agreement reached.
So who owns what accounting records?
This is also a legal mineﬁeld. If you are acting as principal more will belong to you than if you act as agent. The distinction is signiﬁcant in relation to the ownership of documents created by the member during the course of the engagement.
Most members will act as agents so in general, ownership of accounting records is:
The client owns:
- Everything they give the accountant to do the job (ﬁnancial records, invoices, bank statements, HMRC correspondence).
- Any ﬁnal product of the accountant’s instructions e.g. ﬁnal accounts and completed tax return.
- Correspondence generated/received by the accountant as part of his job.
- File notes generated by the accountant to help him reach the ﬁnal product.
- Statutory books of limited companies available for public inspection, relevant to members who provide company secretarial services e.g. articles of association, directors’ minutes and register of members.
- Accounting records available for public inspection e.g. PAYE records, ledgers, journals, balances, schedules, invoices, cheque books, bank statements. The actual accounts themselves don’t form part of the accounting records.
The accountant owns:
- Papers created to help him reach the ﬁnal product (lead schedules and working papers, such as breakdown of debtors and creditors).
- Client correspondence to you and ﬁ le copies of correspondence to the client.
THE IFA’S POSITION
The legal situation is not straightforward and must be approached with caution. If you decide to exercise a particular lien, document your reason for doing so and consider legal advice. Ensure that exercising liens is included in letters of engagement. See letters of engagement templates here: https://tinyurl. com/y35k72gs
Members should consider the impact a lien will have on reasonable transfers of information to new accountants. The Code of Ethics Section 210 (https://tinyurl.com/y89sextj) makes it clear the former accountant must provide the new accountant with all reasonable transfer of information requested, free of charge and all reasonable transfer information must be provided even where there are unpaid fees – a lien cannot be exercised in this respect.