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HMRC has been urged to reconsider their approach to taxing law firms, as many fear for their survival under the current regime.
The Law Society has warned that requiring legal practices to pay tax on works in progress could result in companies – particularly those carrying out publicly funded work – finding themselves in dire financial straits.
The society’s president, Paul Marsh, has written to the Revenue, inviting the department to look into suspending the UITF 40 concept for the duration of the economic crisis.
This temporary provision would be for firms with an annual turnover of no more than £2m - or practices could be given the option to ‘opt out’ and return to a cash basis of accounting, said Mr Marsh.
He added: ‘Since its introduction in 2005, [the UITF 40] regime has caused a lot of financial difficulties for legal practices.
‘Many legal aid firms have in the past taken out annual loans to meet their tax liabilities… [and] many of those firms could be facing closure because the Legal Services Commission’s payments take so long to process, and banks are no longer advancing loans.
‘Not only will this continued tax regime harm legal aid law firms, it will hit those vulnerable people who require access to justice.’
The Law Society has issued advice to solicitors on how to access HMRC’s tax deferral scheme, and the organisation has been invited by the taxman to make written presentations for changes to be made to the UITF 40 concept.
