Pro bono tax fears

On 17 March, the Lord Chancellor launched a campaign to encourage more lawyers to undertake pro bono work.

In common with other professions, solicitors and barristers have an admirable tradition of being willing to carry out pro bono work, but they must be warned that there may be unexpected tax consequences.

As a specialist tax advisor, I was recently called in by an accountant to help him deal with an Inland Revenue investigation into a doctor.

The doctor spent part of his time in private practice and the remainder working, unpaid, at a special clinic for patients with a limited command of English.

The Inland Revenue wanted to disallow all the expenses directly attributable to the doctors pro bono work and a substantial proportion of his general professional expenses.

The argument was that only expenses incurred in the course of a profit-making activity are allowable as professional expenses for tax purposes.

As the Inland Revenue wanted also to reopen prior years, and even charge a penalty, a substantial amount of money was at stake.

So much, indeed, that the doctor was afraid he would have to sell his house to pay the tax.

After two long and difficult meetings with the Inland Revenue, and a great deal of work by the accountant who was willing to support his client to the extent of waiving his own fees for the investigation a compromise was reached which reduced the tax bill to manageable proportions.

Nevertheless, the doctor still found that his willingness to undertake a substantial amount of pro bono work had led to an unexpected tax bill.

Simon Owen, Taxation Services, Rue Gnet, Alderney