More firms ask for help to fund tax bills
The number of law firms that need funding to help pay their January tax bill has jumped by almost 60% since last year, according to a business providing independent finance.
Syscap reports that so far this year it has received 410 requests from law firms for funding to help meet their tax bill due on 31 January, up by 58% from 260 requests in the same period last year.
The organisation says it has seen a higher proportion of requests for loans below £1m as small and medium-sized firms’ need for funding continues to grow.
On 31 January, partner-owned law firms will have to make a payment on account of half of their previous year’s tax bill. As well as paying the January tax bill, which is related to the partners’ profits, firms will have to pay a VAT bill for the quarter ending 31 December 2012, which, says Syscap, will create an additional burden on cash resources.
Chief executive Philip White said: ‘HM Revenue & Customs is under a lot of pressure to get the tax that they are owed in as quickly as possible. That means they have to put a lot of pressure on all businesses to pay their tax bill as quickly as possible.’
At the start of the downturn law firms were able to use the HMRC’s ‘Time to Pay’ process to defer tax payments, but that scheme has been winding down.
White said: ‘Even hugely profitable law firms can find themselves short of cash, especially if customers are slow to pay. The result is we are seeing an ever increasing demand from law firms for a simple funding product to cover tax payments and protect precious cash and working capital.’
If a business does not pay its tax bill on time HMRC can impose fines, interest charges and either seize the businesses’ assets to pay the tax bill, or in extreme cases, have the business shut down.
Syscap suggests that the number of instances where HMRC had used its powers to seize assets rose by 92% to 10,577 times in the year ending March 2012 from 5,520 in the year to the end of March 2011.
‘HMRC is collecting tax on behalf of all taxpayers so they don’t want to allow unpaid tax bills to stack up – it’s clearly a very unsatisfactory situation if otherwise healthy law firms get into difficulties just because they have unpredictable cash flows,’ added White.
Comments
‘HM Revenue & Customs is
‘HM Revenue & Customs is under a lot of pressure to get the tax that they are owed in as quickly as possible. That means they have to put a lot of pressure on all businesses to pay their tax bill as quickly as possible.’
Of course they are, because the economy is on it's knees and the counrty has run out of money. If HMRC is moaning about this now, they, and the government will find themselves in an even worse position once the post April changes have taken their toll and PI firms up and down the country have closed their doors to boost insurance company profits still further. The country generally will also find itself in an even worse position by virtue of the impending insanity, but the government seem too stupid to understand the economic implications of thier own actions.
Maybe the govt should instead concentrate on getting tax out of those who can afford it. Ebay for example reportedly paid £1.2m of tax in 2010 against £800m turnover. Would you like a Starbucks with that Sir?
What a bunch of idiots we have in charge of this country.
spot on
Not only are they idiots who shouldn't be allowed to be left alone with sharp objects never mind the economy/government, the problem is they don't care, their snouts are in enough troughs not to have to worry about their ineptness but worse than that all these reforms and changes are done WITHOUT A MANDATE.
If they had said we are going to have to do x and y upfront they would not have got in power in the first place, now they just claim labour left them a mess and we need to do something about it, fudge fudge etc
They always say you cant polish a turd, and guess what there lots of nasty smells around these 'cronies'
Steve, you wrong. These
Steve, you wrong. These idiots ought to be left unsupervised with knives. Extremely sharp ones rather than the plastic handled ones with noddy pictures which are more appropriate for their level of maturity. Then, when one of the idiots takes toys off another idiot, they'll all stab each other (and then hire 7 QC's to defend them).
I agree though that the whole sorry outfit stinks. Of corruption. Wind forward 10 yrs and see how many of the idiots are insurance co. executives.
Odd comments
DM and steveL
Do you really feel that solicitors who earn income and fail to make a plan to pay their (admittedly high) tax are so blame-free as to make it obvious that the tax collectors and politicians should come to harm? We are paid well above national wage rates, especially partners sharing profits. If the cash flow to fund tax bills is a problem in January it was a problem the previous February. And the intervening 11 months were the time to do something about it.
I have little sympathy, as I am an associate who's stuck with the legacy of the recession and the onset of ABS's. I see my seniors in the profession (not superiors) running their businesses into the ground (I think and hope my firm is different). The sharp objects should be thrown into a partners meeting at a law firm suffering from mediocre management - that's where they are going to be both useful and amusing.
Prudence at the top
I agree.
In my mind, better management of WIP and debtor recovery is needed, and dare I say it, a reduction in drawings?
I can never see why so many firms want to pay their partners' personal tax liabilities - the clue is in the word "personal". Maybe this goes back to a time when one partner's personal debts could impact on the firm as a whole, but overall the motto here is more discipline, more prudence.
Odd comments?
Are adults allowed to comment on these posts ?
The legal profession is a business
and, if you can't run your business properly, you don't deserve to be in it. As Mark Twain said, the only two certainties in life are death and taxes - there is no excuse for not putting cash aside to pay them. You've got to remember that, before anything else,you've got to have the cash to cover salaries and tax. Vanity moves into fancy offices are just hubris. If you want to spend money on that sort of thing, convert yourself into an ABS and get one of the bookies to buy your soul, or go bust .....
Cash Flow
What amazes me is the fact that so many firms have not provided for payment of tax and VAT which always is an issue in January. No doubt they do not provide for payment of Professional Indemnity premiums!
This is simply poor management, it is not as if it is a surprise that these payments have to be made.
Cash is King and where is cash lurking, often in poor management of debtors and work in progress.
When advising firms it is often easier than thought by the partners to plan cash flow but perhaps this is because of my accountancy background.
IT IS NEVER TOO EARLY TO START PLANNING.
Find yourself a competent, experienced, adviser with whom you empathise and bring a brighter future to your practice.
If the LSC paid within a
If the LSC paid within a reasonable time limit, did not seek to reduce and reject everything possible and actually had a slick system for billing instead of the cumbersome, complicated and antiquated system they currently have - cashflow problems would be a thing of the past for those that do legal aid, private clients are not the problem. If the LSC paid what they owe including all the bills stuck in the various stages we would have no loans, no overdrafts and no stress. In the meantime we pay tax on WIP that we probably won't even get for 12 months - how fair is that!