Many personal injury, medical negligence
and fatal accident cases are straightforward in numerical
terms and so solicitors are comfortable to handle them,
perhaps with some input from Counsel. However, in certain
cases, the input of an expert forensic accountant would
be worthwhile and, indeed, it may be necessary if the solicitor
is to fulfil his duties to his client.
(a) Loss of Earnings by Self-Employed Individuals
There is clearly
a case for using forensic accountants where the claimant
was self-employed and had a varying pattern of earnings
before the accident.
For the purpose of the claim, the post-accident
profits of the business need to be evaluated on two bases:
(i) the future
profits of the business under the present circumstances,
i.e. given that the accident has occurred; and
(ii) the future
profits of the business if the accident had not occurred.
The loss is
the difference between the two sets of figures. The forensic
accountant needs to get behind the historical numbers to
understand the trends before the accident. They then need
to investigate the market trends after the accident. Would
sales or profit margins have grown if the accident had not
occurred because the market or demand for products or services
was growing? Alternatively, would they have shrunk because
of changing market conditions?
(b) Loss of Earnings for an Employed Individual
In this case,
an expert witness report about the annual loss of earnings
is unlikely to be required, although forensic accountants
are able to prepare the Schedule of Special Damages, if
(c) Loss of Pension
loss of pension are calculated in different ways because
of the wide range of pension arrangements that are available.
(i) Final Salary
The value of
final salary pension schemes is now widely recognised and
that makes it even more important to accurately access the
impact of the accident of the claimant's pension arrangements.
Most public sector pension arrangements are final salary
schemes and a few of the larger private companies also still
have them. However, many private companies have closed their
final salary schemes to new members and so the prospect
of finding a new private sector job with a final salary
pension arrangement is increasingly remote.
claims in relation to final salary schemes require a standard
form of calculation and an experienced forensic accountant
can assist with this. We can also interpret the pension
documentation and ensure that the right bits of paper are
obtained from the claimant, the employer, or the pension
which will ultimately be obtained from a personal pension
arrangement is solely determined by the size of the pension
pot upon retirement. Hence, it is really an investment arrangement
with specific tax advantages. The most obvious advantage
is the tax relief which can be obtained in relation to the
premiums paid, and so the simple approach to evaluating
the loss of pension in this situation is the loss of tax
For small claims
and for basic rate taxpayers, this simple approach will
be reasonably accurate. However, for large claims and for
higher rate taxpayers, it is likely to be inaccurate because
there are other tax consequences of having the investments
within a pension arrangement. The alternative, more accurate,
approach is to project the build up of the pension pot during
the working life of the claimant and how it will then be
utilised after retirement. These projected cash flows can
then be discounted back to the trial date. This is certainly
rather complex and so it is worthwhile calling on the services
of a forensic accountant when significant sums are involved.
(iii) Loss of
individuals who were contracted in to the State Pension
arrangement, there will also be a loss of pension benefit
under the Second State Pension ('S2P'). This is frequently
overlooked and yet the loss of this can be considerable.
We can assist with these calculations.
(d) Fatal Accident Claims
All of the issues
raised above could apply to a fatal accident claim. However,
even with a straightforward employed individual, the calculations
are relatively complex and a forensic accountant could assist
in their preparation.
(e) Periodic Payments
of the new periodic payments regime poses problems for PI
and medical negligence lawyers trying to advise their clients
on the advantages and disadvantages of lump sums compared
with periodic payments.
They are now
required to consider whether, and to what extent, a periodic
payment is preferable to a lump sum. Such a comparison is
far from straightforward and has been likened to comparing
apples with pears. Solicitors arguably now have a duty to
direct their clients to obtain relevant advice so that they
can make an informed decision.
A forensic accountant
will be able to assist the claimant to identify their true
capital requirements and their true income needs. These
may both differ considerably from the amounts that they
are eligible to claim. Having established the capital and
income needs of the claimant, it becomes possible to address
the question of how these needs can best be met, and, specifically,
to what extent they can be met by means of periodic payments.
accountant can then assist in the exercise of matching the
form of award to the claimant's needs. There are advantages
and disadvantages of periodic payments and these need to
be considered in the specific circumstances of a particular
case. A more detailed briefing paper in relation to periodic
payments is available under the Publication section of this
website within NIFA News Issue 15.