Professional Firms.

We are still waiting to hear the exact date when the new Accounts Rules will become effective. Originally intended to go live in April 2019 it seems likely these will be postponed until the summer. When the new rules go live a firm will be required to obtain an accountants report for that accounting period if the firm has at any time during the accounting period, held or received client money, or operated a joint account or a client’s own account as signatory. The accountant’s report must be completed within six months of the end of the accounting period and if it is qualified to show a failure to comply with the accounting rules it must be submitted to the SRA. There are a couple of exemptions from obtaining an accountants report if firstly, all of the client money held or received during the accounting period was Legal Aid monies or secondly, the total of all client accounts held or operated by the firm did not excess an average of £10,000 or a maximum of £250,000 during the accounting period in question. If you have any queries about whether you require an accountants report we would be happy to discuss your requirements.

This will depend on a number of factors depending on your personal circumstance and position.

If you are an employee/director in a company or a salaried partner in a partnership (or LLP) you will be taxed, broadly, on the salary and any benefits paid to you during the tax year.

If you are a partner in a partnership or a member in an LLP you will generally be taxable on your share of the tax adjusted profits for the accounting year ending in that tax year (e.g. the profit from the accounts ending 30^th April 2018 would be taxable in 2018/19).  However, in the early years of being a partner or member there are special rules which set out what profits you will be taxable on, and also in the final year of being a partner or member.

In addition, things like business expenses incurred personally and pension contributions will have an effect on the amount of tax which you pay.

It’s natural to want to know how your firm is performing compared to your competitors. The use of hybrid structures or operating vehicles which do not have to publish their results can make it difficult to get an accurate picture of how your competitors are doing. PEM, as part of the Kreston network, participates in an annual benchmarking exercise giving you the ability to assess your firm’s performance against similar size firms both nationally and locally. The benchmarking survey provides comparatives for lots of criteria including fees (both by Partner and by fee earner), salary and admin costs and Profit per Equity Partner.

This is a complex question with a number of different options available including

• A Partnership
• A Limited Liability Partnership (LLP)
• A Limited company
• Or a hybrid mixture of the above entities.

New structures are developing all the time with employee ownership and external investors becoming increasingly popular. The right structure for your business will be dependent on a number of factors including size of the business, restrictions placed by your professional body, attitude to risk, the stage the business is at in its life cycle and the number, age and income requirements of the owners. Whilst tax shouldn’t be the main driver in any business decision the tax implications are extensive and a crucial part of any decision making process. We work with our clients to develop a bespoke solution for every business which avoids inflexible structures and succession challenges whilst maximising tax saving opportunities.

Historically, when considering the incorporation of an existing sole trading activity or partnership into a limited company, a big benefit to doing this was the ability to ‘realise’ the goodwill built up in the existing business, and access this value at a low tax rate (if Entrepreneurs’ Relief applied).

Since 3 December 2014 the rules on incorporation and goodwill have gone through significant changes, impacting on both the tax reliefs available on incorporation, and the tax deductibility of the amortisation of any goodwill acquired by the new business.

It is therefore important that when looking at incorporation, the tax position is considered so that there are no unexpected surprises.