Legal aid in some cases is not agreed until after the matter has been settled. In lengthy cases payments on accounts are made. This is a long and protracted procedure that can take many years. Often the payments on account will be for a greater amount than the eventually agreed fee and the barrister has to return the excess. It has been agreed with HMRC that the relevant tax point is payment, normally a payment on account, or the agreement of the fee, whichever comes first. Again, professional judgement has to be applied here and the accounting treatment will depend on the degree of uncertainty. In principle, revenue should be recognised according to the work done to date, rather than according to progress payments received. If a reasonable estimate can be made of the revenue that has been earned as a result of the work done to date, then that should be recognised. Prudence should be built in to that estimate in response to uncertainty. It may be that the level of uncertainty is so high that no reliable estimate can be made until either later in the process or until the case is completed and the fee agreed. Finally, a barrister should not recognise all the progress payments received as revenue, even if they do bear a close relationship to the work done to date, if it is likely that some of the amounts received will have to be refunded.

So lets summarise:

1. The Tax Point is normally payment
2. Prudent judgement is required of the value of work done to date
3. Payments should not be recognised if it is likely that they may have to be refunded

Other interesting points from the Law Society:

• No Win No Fee – Revenue recognised when the case is won
• Pay at End – either estimate the fees or if uncertain revenue should be recognised when a reliable estimate can be made
• Fixed Fee – use appropriate judgement

steve@bicknells.net