BARRISTERS M anagem ent of Professional Finances - Menzies LLP
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BARRISTERS Management of Professional Finances
BARRISTER TEAM
David Truman Tim Humphries
Partner Director
Sehjal Gupta Todd Wootton
Director Manager
Rutvik Patel Mary Kelly
Trainee Manager
Menzies LLP
Lynton House
7-12 Tavistock Square
London
WC1H 9LTPROGRAMME TIMETABLE
• Registration
• Responsibilities as a self employed individual
• Accounts and Choosing your year end
• Tax and Tax Returns
• Case Study
TEA BREAK
• Allowable expenditure
• Penalties and Enquiries
• VAT
• Money Laundering RegulationsRESPONSIBILITIES AS A SELF- EMPLOYED INDIVIDUAL • T h e U K o p e r a te s a “ s e l f a s s e s s m e n t” ta x s y s te m • Record keeping • S ta tu to r y r e q u i r e m e n t to k e e p r e c o r d s fo r 6 y e a r s • O p e n a s e p a r a te b a n k a c c o u n t • N e e d to r e g i s te r w i th H M R C o n l i n e • B y 5 O c to b e r i n y o u r s e c o n d y e a r o f tr a d i n g
ACCOUNTS
Choosing your year end
• U K Ta x Ye a r r u n s 6 A p r i l – 5 A p r i l
• But you can choose when your accounting year ends
• First set of accounts cannot be longer than 18 months
• First year taxed on profits to 5 April
• Filing deadline:
– Paper filing – 31 October following the end of the tax year
– Electronic filing – 31 January following the end of the tax
year
• What tax will you pay? – POA, Class 4 NIC, Class 2 NIC
• Student loan repaymentsBASIS OF TAXATION
• Cash basis
– N e w r u l e s fr o m 6 A p r i l 2 0 1 7
– Tu r n o v e r l e s s th a n c a s h b a s i s th r e s h o l d ( c u r r e n tl y
£ 1 5 0 ,0 0 0 ) c a n e l e c t to p r e p a r e o n c a s h b a s i s
– L e a v e th e s c h e m e w h e n r e c e i p ts tw i c e th e c a s h
b a s i s th r e s h o l d ( c u r r e n tl y £ 3 0 0 ,0 0 0 )
• Tr u e & fa i r b a s i s
– D e b to r s
– Wo r k i n P r o g r e s s ( W IP )MAKING TAX DIGITAL
• In tr o d u c e d i n A p r i l 2 0 1 9 a n d w i l l b e c o m p u l s o r y i f y o u
e a r n o v e r VAT th r e s h o l d
– Optional if below the threshold
• A r e q u i r e m e n t to k e e p d i g i ta l r e c o r d s
• S e l f e m p l o y e d w i l l n e e d to fi l e VAT a c c o u n ts o n a
q u a r te r l y b a s i s u s i n g s o ftw a r e n o t p r o v i d e d b y H M R C
• We e x p e c t th i s to b e r o l l e d o u t to s e l f- a s s e s s m e n t
i n c o m e ta x i n d u e c o u r s e a fte r A p r i l 2 0 2 0TIMELINE
April 2021 Tax April 2022 April 2023
year 2020/21 Tax year 2021/22 Tax year 2022/23
31 January 2022 31 July 2022
-2020/2021 tax -2021/2022 2nd
payment due payment on
account
- 2021/2022 1st
payment on
accountCASE STUDY
• Step 1 – registering with HMRC
– Bertie secured pupillage beginning 1 October 2019
– His first six months pupillage award is tax free (1 October 2019 –
31 March 2020)
– The second six months, 1 April – 30 September 2020, starts his
accounting period
– Bertie registers with HMRC as being self employed and for Class 2
NIC before 6 October 2022,
• S t e p 2 – A c c o u n t i n g Ye a r E n d
– Bertie has decided that his accounting year end will be 5 April
(NB: HMRC will ignore the first five days from 1 April-5 April 2020
so a tax return for 2019/20 need not be completed but if you
register and say your trade started on 1 April 2020 HMRC’s system
will issue a 2019/20 tax return)
– Bertie’s first accounting year runs 1 April 2020 – 5 April 2021
– Bertie has received cash of £50,000 and incurred expenses of
£30,000. He therefore has profits of £20,000 on which he is taxedCASE STUDY
• S t e p 3 – t h e Ta x R e t u r n
– Bertie’s tax return has been completed, with addition to the
profit from his self employment as a barrister; there is also a
small amount of bank interest. His tax and NI liability for the
tax year 2020/21 is calculated at £2,680
– Bertie’s tax return is due electronically by 31 January 2022
– Bertie’s tax bill of £2,680 is due by 31 January 2022
– Bertie is also due to make two payments on account towards
his 2021/22 tax liability of £1,340 (£2,680/ 2)
Payment due 31 January Payment due 31
2022 July 2022
2020/21 Balancing payment 2,680.00
2021/22 1st Payment on Account 1,340.00
2021/22 2nd Payment on Account 1,340.00
Total 4,020.00 1,340.00CASE STUDY
• S t e p 4 – n e x t y e a r ’s t a x r e t u r n
– We then prepare the 2021/22 tax return and see that Bertie has
a t a x l i a b i l i t y o f £ 11 , 3 8 0 b a s e d o n a p r o f i t o f £ 5 0 , 0 0 0 .
– Bertie has already made two payments on account totalling
£2,640.00 which leaves a balance of £8,740.00 to be paid on
31 January 2023
– But there is something else Bertie will need to pay on this date
– t h e f i r s t p a y m e n t o n a c c o u n t f o r t h e n e x t y e a r ’ s l i a b i l i t y.
T h i s y e a r, t h e y w i l l b e £ 5 , 6 9 0 ( 5 0 % o f t h e £ 11 , 3 8 0 l i a b i l i t y ) a n d
this makes the total payment to be £14,430 due to be paid by
the 31 January 2023TEA BREAK
EXPENDITURE
G e n e r a l l y, H M R C a l l o w y o u to d e d u c t a l l e x p e n d i tu r e th a t
is:
• In c u r r e d “ w h o l l y a n d e x c l u s i v e l y ” fo r th e p u r p o s e o f
g e n e r a ti n g y o u r b u s i n e s s i n c o m e .
• R e v e n u e i n n a tu r e – a l th o u g h p l a n t a n d m a c h i n e r y m a y
q u a l i fy fo r c a p i ta l a l l o w a n c e s .
• N o t a n e x p e n s e th a t i s s p e c i fi c a l l y d i s a l l o w e d b y
s ta tu te /c a s e l a w.
T h e fo l l o w i n g e x p e n s e s a r e n o t a n e x h a u s ti v e l i s t b u t
h e l p s g i v e y o u a n u n d e r s ta n d i n g o f th e m a i n e x p e n s e s
usually claimed.ALLOWABLE EXPENDITURE
Revenue
• C h a m b e r s r e n t a n d /o r c l e r k fe e s
• P r a c ti c e c e r ti fi c a te , In d e m n i ty i n s u r a n c e a n d D a ta
P r o te c ti o n A c t p a y m e n ts
• A c c o u n ta n c y fe e s
• Business Use of Home:
Ø A reasonable proportion of household costs or
Ø Flat rate (between £10 and £26 per month) depending on
number of hours worked from home (25 hours to 101 hours a
month)
• M o b i l e /i n te r n e t c o s ts – b u s i n e s s u s e o n l yALLOWABLE EXPENDITURE
• B o o k s & S ta ti o n e r y
• C o l l a r s , b a n d s a n d s tu d s
• B a n k c h a r g e s fo r o p e r a ti n g a b u s i n e s s a c c o u n t.
• B a n k i n te r e s t - i f a c c o u n t o v e r d r a w n to s e ttl e b u s i n e s s
e x p e n s e s ( u n d e r th e c a s h b a s i s fi n a n c e c o s ts c a p p e d a t
£500)
• Tr a v e l ( n o r m a l c o m m u ti n g d o e s n o t c o u n t, i .e . h o m e to
chambers)
• H o te l s a n d r e a s o n a b l e s u b s i s te n c e c o s ts i f i n c u r r e d
d u r i n g q u a l i fy i n g b u s i n e s s tr a v e lALLOWABLE EXPENDITURE M o to r E x p e n s e s : Ø A n n u a l a l l o w a n c e g i v e n b a s e d o n th e c o s t o f th e c a r a n d a p e r c e n ta g e ( 1 8 % to 6 % ) d e p e n d a n t o n th e C O 2 e m i s s i o n ( 11 0 g /k m ) l e s s a n y p r i v a te u s e . P l u s r o a d ta x , i n s u r a n c e , M O T /s e r v i c i n g , fu e l c o s ts l e s s p r i v a te u s e o r Ø C l a i m b a s e d o n H M R C A M A P r a te s o f 4 5 p a m i l e fo r fi r s t 1 0 ,0 0 0 b u s i n e s s m i l e s th e n 2 5 p th e r e a fte r Ø C a r l e a s e p a y m e n ts a l l o w a b l e s u b j e c t to a 1 5 % r e s tr i c ti o n fo r r e n ta l o f c a r s w i th C O 2 o v e r 11 0 g /k m l e s s p r i v a te u s e
ALLOWABLE EXPENDITURE Capital – Qualifying Plant & Machinery C a s h B a s i s – s i m p l y c l a i m a d e d u c ti o n fo r c o s t o f a s s e t. In c l u d e s a l e p r o c e e d s a s i n c o m e i f a s s e ts l a te r s o l d . Tr u e & F a i r B a s i s - A n n u a l In v e s tm e n t A l l o w a n c e c u r r e n tl y a l l o w s 1 0 0 % r e l i e f o n p u r c h a s e s o f u p to £ 2 0 0 ,0 0 0 ( £ 1 m fr o m 1 J a n 2 0 1 9 ) th e r e fo r e i n r e a l i ty a l l q u a l i fy i n g c o s ts w i l l b e fu l l y d e d u c ti b l e • W i g s a n d G o w n ( b u t l a u n d r y c o s ts a l l o w e d a s r e v e n u e ) • S u i tc a s e Tr o l l e y b a g s • L a p to p s / i PA D s , l e s s a n y p r i v a te u s e a d j u s tm e n t
EXPENDITURE Disallowable • Costs of BPTC • Interest on the loan taken out to pay for BPTC • Dinners at the Inn • Inns of Court membership • Clothing e.g. suits, shirts, shoes etc. • Client/Contact entertaining • Parking/speeding fines • P a y m e n t o f Ta x a n d N a t i o n a l I n s u r a n c e • Overdraft fees to fund private expenses
PENALTIES & ENQUIRIES
• F a i l u r e to s u b m i t a ta x r e tu r n o n ti m e
– 1 day late – £100
– 3 months late – £10 for each day up to 90 day max
– 6 months late – £300 or 5% of tax due, whichever is the higher
– 12 months late – £300 or 5% of the tax due whichever is the
higher Serious cases may be asked to pay 100%
• F a i l u r e to p a y ta x d u e
– Interest – currently 3.25%
– Penalties
• 30 days late – 5% of tax due
• 6 months late – 5% of tax due
• 12 months late – 5% of tax due
• F a i l u r e to r e g i s te r w i th H M R C
– Penalty due based on tax outstanding at 31 January
• EnquiriesVAT
• Compulsory registration
o Tu r n o v e r e x c e e d s VAT t h r e s h o l d ( c u r r e n t l y £ 8 5 , 0 0 0 ) i n a r o l l i n g 1 2
month period
• Vo l u n t a r y r e g i s t r a t i o n
o Yo u c a n r e g i s t e r v o l u n t a r i l y i f y o u r b u s i n e s s t u r n o v e r i s b e l o w
£85,000
• VAT R e t u r n s
o Prepared every quarter
o Return has to be submitted online one month and seven days after
the quarter end
o Payment is due same time as submission deadline
o M a k i n g Ta x D i g i t a l f r o m A p r i l 2 0 1 9
• I n p u t VAT
o 50% on lease payments of car
o Tw o d a r k s u i t s a n d s i x t u n i c s h i r t s
o M a y r e c o v e r i n p u t VAT o n s e r v i c e s i f i n c u r r e d s i x m o n t h s b e f o r e
effective date of registration if the service is for a taxable business
purpose
o I n p u t VAT o n g o o d s m a y b e c l a i m e d i f i n c u r r e d u p t o f o u r y e a r s
before effective date of registration if goods still used in the
business
.MONEY LAUNDERING REGULATIONS
• W hat is m oney laundering?
• Does this affect m e?
– Regulations apply to a number of persons including
• tax advisers
• independent legal professionals ( firm or sole practitioner) when
dealing with
– Buying or selling or property
– M a n a g i n g c l i e n t m o n e y, s a v i n g s o r s e c u r i t i e s
– Organisation of contributions necessary for creation, operation or
management of companies
– Creation, operation or management of trusts, companies or similar
structures
• Im portant decision in Bowm an v F els
• O bligations
• Penalties
– Fine or up to 2 years imprisonmentUSEFUL CONTACT DETAILS
• Registering for Self Assessment and National Insurance contributions if you are a self-employed
sole trader
https://www.gov.uk/government/publications/self-assessment-and-national-insurance-contributions-register-if-youre-a-self-employed-
sole-trader-cwf1
• Record Keeping software
https://www.gov.uk/government/publications/record-keeping-and-simpler-income-tax-applicationssoftware
Our details
David Truman, Partner
Email : dtruman@menzies.co.uk
Tim Humphries, Director
Email: thumphries@menzies.co.uk
http://www.menzies.co.uk/helping-you/private-client/barristers-advice/You can also read
