Large law firms struggling with cash flow problems will find it easier to obtain an extension on their tax deadline following a change in the rules adopted by HM Revenue & Customs.

The new policy will extend the revenue’s Business Payments Support Service (BPSS) to large partnerships, which had previously been overlooked.

Before the rule change, each partner at a law firm seeking to delay its tax payment was obliged to negotiate individually with the Revenue. However, a firm may now nominate one individual – probably a finance director or tax adviser – to act on its behalf.

The firm can arrange a joint time-to-pay agreement through the BPSS if it can demonstrate that the partners will be able to pay their tax liability in full in the next 12 months.

The new rules will apply irrespective of the aggregate size of partners’ liabilities.

However, an application on behalf of a large partnership with more than £1m of tax owed will be dealt with by senior customs officers. Such firms should expect to be asked to provide detailed financial forecasts.

The development will be welcomed by many large practices experiencing difficulty in meeting tax bills. A recent survey of 120 law firms by accountants Smith & Williamson showed that 40% found managing cash flow to be an issue.

Richard Mannion (pictured), national tax director at Smith & Williamson, said: ‘This development is a major breakthrough for any sizeable practice which might be feeling pressure on cash flow in the current climate.

‘Inevitably, problems and inconsistencies occurred when there were, say, 50, 100 or more partners, typically spread over different offices, each trying to draw up their own arrangement with the local tax inspector. The old system just didn’t work.’The BPSS was introduced in 2008 to help firms experiencing financial difficulties because of the economic climate, by providing a fast-track response for time-to-pay applications.