Solicitors year end tax planning part 1

For many solicitors firms, the end of the business year is fast drawing to a close. If results are looking better than previous years, you may be starting to think about the tax implications of a better year. We would urge solicitors firms to make plans now to mitigate these liabilities, and in this blog we discuss three key points that solicitors firms should consider before the year end.

1. Expenditure on revenue and capital items

If you have plans to undertake repairs or renewals expenditure (such as, for example, decorating or refurbishments), you may want to consider bringing forward the plans in order to incur and include the tax-deductible expense before the year end.

Similarly, it will be worth considering whether any planned capital expenditure can be incurred before the year end. With the Chancellor’s increased Annual Investment Allowance from 1 January 2019 to £1 million (from £200,000), the available tax savings are greater than they were before. For a year ending 31 March 2019, the maximum available allowance is £400,000, depending on the timing of purchases. If you are considering acquiring assets on Hire Purchase, speak to us as the capital allowance treatment is slightly different to outright purchases.

2. Bad or doubtful debt

You may already have a provision in the accounts for debts which are clearly not going to be recovered, but have you considered a provision for doubtful debts? If there is reasonable doubt over the recoverability of a debt, a provision can be made in the accounts in the same way as for bad debts, with the expense being tax-deductible in the profit and loss account. Consider, specifically, the solicitors firm’s history of recovering such doubtful debt and the age of the debt concerned.

3. Dilapidation

If your solicitors firm leases property, have you considered providing for the costs to return the building to its original state when you vacate the property? Instead of incurring a one-off expense to the profit and loss account when the expenditure is paid, it’s possible to make a prudent assessment of the likely costs now and provide for the amount as a tax-deductible expense in the current year. This provision can be reassessed in future on an ongoing basis, with variances being charged to the profit and loss account in the same way as other provisions.

Above are just three of the ways a solicitors firm can plan to mitigate its tax liabilities before the year end. Please speak to us if you’re concerned about tax liabilities and we can talk through these and more options in greater detail. Call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Now that we’ve looked at ways a solicitors firm can reduce its tax burden, we’ll examine three ways to reduce personal tax liabilities – look out for part 2 of the blog!