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What fees does a barrister need to declare?
Special rules for barristers and advocates
Barristers are not permitted to provide their services through a limited company. All barristers have to register as self-employed and submit business accounts as a sole trader to HMRC. There are special provisions relating to cash accounting and the rules have changed in recent years meaning there are three different regimes that can apply. There are time limits for the cash accounting schemes so if you are in your first few years of practising you will need to make sure that you are reporting the correct figures to HMRC. Guidance is available from the Bar Council here.
A barrister on a mobile phone outside Southwark Crown Court.
(Photo credit: Wikipedia)
Cash Accounting
The Finance Act 2013 introduced the possibility of cash accounting for most unincorporated business including sole traders from 6th April 2013. Barristers already had a cash scheme available when they started their practice with permission to continue the same cash accounting principles for up to 7 years under the Finance Act 1998. This old cash scheme is no longer available to new barristers, but anyone who started preparing accounts under the old cash basis by 5th April 2013 can continue to do so until their seven years is up or they transfer voluntarily to another scheme. Once you have left the old cash scheme there is no turning back.
Barristers can join the new cash scheme where fee receipts do not exceed the VAT registration threshold (currently £79,000 per year). If receipts are more than twice the VAT registration threshold (currently £158,000) the barrister must leave the scheme.
The advantages of the cash schemes are that they are easier to administer so there is less need to engage an accountant to prepare your accounts. You only pay tax on fees received and you do not have make calculations at the year-end for work that is incomplete or invoiced and not yet paid by your clients. This means that your tax payments are delayed compared to the earnings basis below and will improve your cash flow. There are other aspects of the cash schemes which are explained in more detail here.
A barrister on the old cash scheme can elect to leave the scheme early, but the new cash scheme does not allow exit unless there is a “change in commercial circumstances”.
Earnings based accounting
UITF 40 requires that long term contracts are recognised in the year-end accounts to the extent that partly performed work is recognised as taxable income. This requires barristers to calculate the value of any Work In Progress (WIP) at the end of their financial year and include this in their total income.
Materiality is a key concept in accounting, but the materiality of the total WIP must be considered not just the materiality of each individual contract. It is not permitted to disregard a number of immaterial amounts if when considered together they are material to the accounts. In practice this means that almost all WIP is chargeable to tax under the earnings method. One of the few clear cut exceptions is a no fee no win case, where no WIP is to be recognised.
Transitional arrangements
When changing from either cash accounting scheme to the earnings based scheme a calculation of the WIP must be made which will increase the taxable income for the year. The old cash method allows the closing WIP at the time of the change to the earnings method to be recognised over a period of up to 10 years. The provisions under the new cash scheme have a reduced timeframe of 6 years. It is normally the case that anyone transferring from the old cash scheme to the new cash scheme would not need any adjustment to the annual accounts. There are corresponding adjustments for barristers transferring from the earnings scheme to the new cash scheme – explained in more detail here.
For more information on an accountancy firm that can set you up with online accounting and deal with all your business accounts and VAT – contact Alterledger or visit the website alterledger.com.
Useful links
| Bar Council Guidance | practice-updates-and-guidance/remuneration-guidance/ |
| Faculty of Advocates | http://www.advocates.org.uk/ |
| HMRC crackdown on barristers | http://www.bbc.co.uk/news/business-19635051 |
Company Filing Requirements Consultation
Red Tape Challenge.
As part of the UK Government’s intention to make regulations more relevant to the world we live in there is a consultation on the filing requirements for UK companies. The pdf document can be downloaded from the gov.uk website. Included in the consultation are suggestions to reduce the burden of form-filling for small businesses including scrapping the annual return and reducing the need to hold duplicate information at your registered office and Companies House.
The consultation document goes into great detail on the costs and benefits of each change being proposed. The cost saving to companies in not having to complete the annual return is assessed at £1.60, but this ignores any fines incurred by people who have missed their deadlines for filing.
Have your say.
The last consultation from Companies House only received a few hundred responses (according to my source) so if you have strong feelings on bureaucracy imposed on you, your response will have some impact. If you are uncertain of your filing requirements you can ask an accountant who will be able to advise on anything you need to do.
Checking the record.
If you are company you can check your details on the Companies House website, or at the following link replacing the last eight characters with your own company registration:
http://data.companieshouse.gov.uk/doc/company/SC433814
If your company registration has fewer than eight characters add leading zeros to make it the correct length. Of course you don’t have to limit yourself to checking your own details – whenever you are considering a new customer or supplier who is a limited company / limited liability partnership etc. it is a good idea to check their entry on the companies house register to get more information on them including names of directors.
Useful links
| Companies House WebCHeck | http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo |
| Red Tape Challenge | http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/ |
| GOV.UK public consultations | https://www.gov.uk/government/publications?publication_filter_option=consultations |
4 Things a charity needs to know about annual reporting
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
Charities survive on their reputation.
Whether your charity is funded from voluntary donations, grant funding or commercial activities it is important that all funders can look up key information to check your organisation is working effectively. The annual reporting is time-consuming and potentially costly, but it is possible to restructure a charity to save on administrative costs.
1 – Charities must report to their regulator
Charities in England & Wales with an annual income of over £10,000 must report to the Charity Commission for England and Wales. Charities in Scotland must report to the Office of the Scottish Charity Regulator. The Charity Commission for Northern Ireland has recently been set up for the regulation of charities in Northern Ireland.
2 – Cross border charities must report multiple times
Under the Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act), bodies which represent themselves as charities in Scotland are required to register with OSCR. This requirement includes bodies which are established and/or registered as charities in other legal jurisdictions, such as England and Wales.
3 – Not all charities require an audit
Historically, the term ‘audit’ has been used loosely to describe any independent scrutiny of accounts. However, under the Charity Regulations if the term ‘audit’ is used in a charity’s constitution or governing document the charity must have its accounts audited by a registered auditor.
Charity Trustees may consider that the benefits of having an audit are outweighed by the costs. Trustees may wish to review their constitution and either:
- retain the term audit in their constitution or
- amend the constitution to require an independent examination of the accounts
Any change to the constitution must be carried out in accordance with the terms of the constitution and following professional advice. Notification of any change must also be sent to the charity’s regulator.
If an audit is not required by your members or governing document, an independent examination can be much more cost-effective than a full external audit and can be carried out by wider range of accountants and financial professionals including a member of the Chartered Institute of Management Accountants.
4 – Your current legal form may not be the best for you
Many charities have been set up with archaic governing documents and may be a Trust or Limited Company or other type of body, which is no longer suited to them. Trustees of Trusts and Unincorporated Associations are personally liable for the actions of a charity and expose themselves to a greater risk that Trustees of a Limited Company. Trustees of a Limited Company are required to report to Companies House as well as their charity regulator, increasing the administrative cost of the organisation.
A new legal form has been developed to allow charities to incorporate and report to just one body. Any Charitable Incorporated Organisation in England & Wales or Scottish Charitable Incorporated Organisation in Scotland is recognised as a corporate body which is a legal entity having, on the whole, the same status as a natural person.
This means it has many of the same rights, protections, privileges, responsibilities and liabilities that an individual would have under the law. As a legal entity, the CIO / SCIO may enter into the same type of transactions as a natural person, such as entering into contracts, employing staff, incurring debts, owning property, suing and being sued. As the transactions of the CIO / SCIO are undertaken by it directly, rather than by its charity trustees on its behalf, the charity trustees are in general protected from incurring personal liability in the same way company directors of a Limited Company.
In England and Wales you can:
- apply to register a completely new organisation as a CIO
- set up a CIO to replace an existing unincorporated association or trust
(You can’t currently convert a charitable company to a CIO)
In Scotland you can:
- apply to register a completely new organisation as a SCIO
- convert existing charitable companies, charitable industrial and provident societies and charities of any other legal form to a SCIO
For more information on an accountancy firm who can provide the statutory reporting, and also support you in the running of your charity please contact a member of the Chartered Institute of Management Accountants using the link to The Team above.
Useful links
| Charity Commission: | http://www.charitycommission.gov.uk/ |
| OSCR: | http://www.oscr.org.uk/ |
| Charity Commission NI: | http://www.charitycommissionni.org.uk/ |
Does your accountant work for you?
The role of an accountant in a business.
Many small businesses do not have an accountant on the payroll and hire external consultants to fulfil their financial needs. In too many cases the accountant is only working for the benefit of external stakeholders such as Companies House and HMRC. This role is described as financial accounting, with a focus on historical information prepared for people outside the organisation.
To be in control of your business you need to have up to date and forward-looking information. This role is fulfilled by a Management Accountant.
What is a management accountant?
The definition from Wikipedia at the time of writing:
[Management accounting] is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
The summary definition from the Chartered Institute of Management Accountants:
Management accounting combines accounting, finance and management with the leading edge techniques needed to drive successful businesses.
Working together.
To get the best value out of your accountant and to deliver the best return from your business, you and your accountant need to work in concert. Accountants hate the dreaded shoebox moment where a whole year’s transactions are delivered months after the financial year end. This approach costs the client more as the accountant will be charging for sifting through pieces of paper. The value to the business of the accounts is reduced as any analysis is out of date.
With cloud software systems you and your accountant can work in real time. Cash transactions can be entered into the system automatically from your online banking meaning that you are not taking up your accountant’s time or yours with inputting figures from paper statements. This also means that your accountant can see the business in real time and is able to support you and perform a leading role.
Leading or following?
If your accountant is someone you hear from once a year, the service they provide is passive and follows your business. It may be time for a change to a firm with a focus on leading your organisation and being active throughout the year.
For more information on an accountancy firm who can provide the statutory accounting, but focuses on leading your business to greater success please contact a member of the Chartered Institute of Management Accountants using the link to The Team above.
Useful links
| CIMA: | http://www.cimaglobal.com/About-us/What-is-management-accounting/ |
| Wikipedia: | http://en.wikipedia.org/wiki/Management_accounting |
UK Private Limited Company Formation – A brief guide.
Image courtesy of renjith krishnan / FreeDigitalPhotos.net
What is a private limited company?
A private limited company is a company limited by shares. The company is run by its directors on behalf of its shareholders. There must be at least one director and one shareholder for any new private company. The same person can be director and shareholder. The shares in a private company cannot be traded on a stock exchange, this is only open to public limited companies.
A limited company is a legal person, which means that it is separate from its owner’s finances. This legal separation brings various advantages and obligations / disadvantages that you would need to consider before setting up a company for your business.
Limited company advantages
Some of the reasons business owners decide to incorporate a company include:
- Separation of the business from the owner’s personal finances and other business interests.
- Limitation of personal liability (limited to unpaid share capital).
- Tax benefits (Corporation tax is currently lower than personal tax rates).
- Greater credibility with banks, funders, suppliers and customers.
Limited company disadvantages
With the rights that a limited company enjoys come responsibilities and restrictions including:
- Requirements for governance procedures e.g. annual meetings.
- Annual filing obligations with Companies House and HMRC.
- Additional cost compared to operating as a sole trader.
- Restrictions on withdrawing money from the business (see below).
- Company details must be presented on official documents and website (see below).
Withdrawing money from a company
Although a company is a separate legal person from its directors and shareholders there are restrictions on how money can be taken out of the business. As a director of a company there are only three ways to take cash out of the business:
- Salary
- Dividends to shareholders
- Directors’ loans
Companies must pay National Insurance at the rate applicable to salaries paid under a contract of employment. Deductions must also be made from the gross salary for National Insurance and Income Tax. Any salary must be paid under a contract of employment and is subject to the National Minimum Wage. Directors are not able to invoice their own company for their personal time spent working on the company.
Dividends are paid at a rate agreed by the company for each class of share. If a director is also a shareholder any dividend paid to shareholders will be paid to the director. Dividends can only be paid out of retained profits (after tax). If you want to pay dividends, you must have financial records to show that there are sufficient retained profits in the company.
Any money paid to a director that isn’t salary or a dividend must be considered a director’s loan. Full records of directors’ loans must be kept and depending on when they are repaid there are different rules on how they are treated for tax purposes.
Business stationery
All companies are required to use their official company name with any business correspondence. The company name must be stated on all stationery including Limited or Ltd at the end to signal that it has limited liability.
All business letters / emails, order forms websites must include the following information:
- Place of registration e.g. Scotland
- Registered number e.g. SC433814
- Registered office address e.g. 4 Dolphin Road, Glasgow G41 4LE
For more information on forming a company for your business or keeping financial records please contact member of the Chartered Institute of Management Accountants using the link to The Team above.
Business Accountant 