Newsletter September 2009

Don’t delay your pension plans!

John Davenport, Pensions Manager

Your retirement may seem a long way off, but don’t fall into the trap of delaying your pension thinking that you’ve got plenty of time.  As a barrister you are self employed and will not have a business to sell when you come to retire, nor are you automatically part of a company pension scheme, so you must make your own plans! Take it from us, your retirement will come round much faster than you think.

The longer you delay starting your pension savings, the more you will need to pay into a pension scheme to achieve the size of retirement income you want.  Look at the example below, which shows the amount you need to pay into your pension fund each month in order to achieve a pension of £50,000 a year on retirement at age 60.  The figures increase significantly the longer you delay. 

Starting age    Premium per month
23                    £500
33                    £1100
43                    £2400
53                    £8300

Remember:

• The sooner you start contributing, the longer your contributions have the potential to grow.

• The payments you make are eligible for tax relief. The rate of relief depends on your personal circumstances and total income.

• The longer you live, the more money you are likely to need. With medical advances controlling many killer diseases, your life expectancy could continue to rise.

• And don’t forget that retirement is the time to start doing many of the things you have had to delay because of work commitments!

We can help you!
If you don’t already have pension arrangements in place or would like to review your pension or other investments please give us a call or contact us. We have a dedicated team of financial advisers and pensions specialists used to working with barristers who will be able to help you.

Computation of profits for income tax purposes

Tony Reynolds, Head of Bar Department

The question of how to calculate your profits is one that is frequently raised by barristers. The answer unfortunately is rather complex. 

The Revenue has made a special dispensation for barristers, which means that for the first seven years of your profession you are assessed for tax using the ‘cash basis’ of calculating your profits. That is, broadly, monies received against monies paid.

After you are seven years in, the basis reverts to the normal rule that income is to be recognised as you provide your service – the ‘earnings basis’. This means that monies owed to you (but not yet paid) are also included in the computation of the profit subject to tax.

More recently this concept of earnings has been extended. As well as completed work not yet paid to you, it now also includes the assessment of partially completed work. For example if a case is in progress at the year end, your accounts will have to recognise a proportion of the anticipated fee. But if the fee is conditional or contingent on a specific event the revenue is not recognised until the condition or contingency is satisfied. Therefore in most cases the need to recognise an adjustment to your accounts income will be limited to no more than a handful of cases or matters. It is however important that you are able to demonstrate to the tax authorities if challenged that you have considered the cases and matters in progress at your year-end. We set out below the process to follow and document at your accounts year-end.

Accounts year-end information

To prepare your accounts you will need to review each case in progress at your accounts year-end and prudently assess and record the following:

1. Identify if the fee is contingent or conditional. Where the fee is conditional or contingent on a specific event, the revenue is not recognised until the condition or contingency is satisfied.

2. Otherwise assess:
• The percentage stage of completion
• The final anticipated fee.

The values should not be overstated but estimated prudently. This information, along with the other normal accounts information, is needed to prepare your accounts.

VAT returns to be made electronically from 2010

Claire Hardwick, Bar Department

HM Revenue & Customs (HMRC) plans to phase out paper VAT Returns from April 2010. After that date, if your turnover is over £100,000 (or if you are newly VAT registered) your return will have to be submitted online and you must pay VAT electronically.

There are a number of benefits to submitting a return online:

• Faster – no postal delays
• Secure communication
• Immediate confirmation of submission
• Up to an additional seven days to file and pay (plus three more days if you pay by direct debit)

When you submit a VAT return online, you must pay electronically. There are several options for doing this.

• Direct debit
• Internet, telephone banking or BACS direct credit
• Debit or credit card over the Internet using BillPay

Further details of these methods can be found on the HMRC website

If you are an existing Cassons client taking our Silk package, we will have already notified you that we have started the registration process in order for your filing to be completed online. Otherwise you need to register online here.

Leaving the Bar?

Andew Hood, Bar Department Manager

When leaving the Bar, whether on retirement, to take a judicial appointment or on leaving the profession altogether, there are several major issues to think about, including the following financial considerations.

Tax position

It is a basic principle of tax that your profits as a barrister over the life of your profession will be taxed.  The basis of how this is apportioned and taxed in tax years is codified and there are provisions for the opening and closing years.

If you have chosen to ‘pay as you go’ your tax by choosing a 5 April (or 31 March) period-end date for your accounts, that is the same as the tax year, the pattern is simple: accounts year = tax year. If however you have chosen to defer your tax liability by having an accounts period-end that is early in the tax year, say 30 April (which we generally recommend), and if your earnings continue to grow, then you will accumulate a liability over your professional lifetime that will catch up in the final tax assessment.

The final tax assessment will be based on your final accounts when prepared but this tax liability can be predicted as soon as you have a clear end date in sight so that you can budget for the tax liability on leaving the Bar. 

A barrister with a 30 April period end will generally have a larger final tax bill but will have had the advantage throughout their career of paying tax in arrears on what will, by and large, have been a rising income.

For this reason it is important, when considering ceasing the profession, that the tax position is ascertained and provision made as early as possible for the tax liabilities arising.

Outstanding fees

In preparing the final accounts you will need to consider and include the value of outstanding fees.

It is likely that the amount included will not be the exact amount that you will eventually receive.  Any surplus or shortfall will need to be accounted for by you in future tax returns.

VAT

If you cease to practise, then you must deregister for VAT. You must notify HMRC in writing within 30 days of ceasing to practise. If you have any outstanding professional fees, you can choose to:
• pay the VAT due on the fees straight away; or
• defer payment.

You must normally account for VAT on all your outstanding fees at the time you cease to practise. However, with HMRC’s permission, you may defer paying the VAT on any outstanding fees until the earlier of:
• the date you actually receive the fees; or
• the date you issue a VAT invoice.

When you do eventually pay the VAT, it must be at the rate in force when you ceased to practise, not the rate in force when you pay HMRC.

New rules for tax deductions on cars

Lee Sharpe, Tax Department

The rules relating to tax relief on buying or leasing cars have changed from 6 April 2009. Unlike the old rules, the new rules do not penalise expensive cars. The old rules for “expensive cars” are being phased out and replaced with a system based on the CO2 emissions of the car. The restriction on allowable lease rentals is also based on CO2 emissions.

Buying cars from 6 April 2009

As part of the Government’s green initiative the tax relief is now based on the vehicle’s CO2 emissions. The maximum allowance will no longer be ‘capped’ at £3,000 a year. Brand new ‘super’-low emissions cars (less than 110g CO2/km) will get an immediate 100% allowance on their cost. Other cars will generally rank for annual allowances at either 20% per year for cars with CO2 emissions up to 160g/km, or 10% per year for cars with CO2 emissions over 160g/km.

CO2 emissions (g/km)      Allowances available
Up to 110g/km                     100% (if car is brand new)
111 - 160g/km                     20%p.a.
More than 160g/km             10%p.a.

Leasing cars from 6 April 2009 – a better deal?

‘New’ lease agreements will also be subject to an emissions adjustment: lease payments on cars with CO2 emissions up to 160g/km will not suffer the old ‘expensive car’-type lease restriction, no matter the list price; cars with CO2 emissions over 160g/km will have a flat 15% of the relevant lease cost disallowed. Although at first glance this might look like a strong incentive to lease a car instead of buying it, the transaction should be looked at ‘in the round’ to make sure that over the lifetime of the lease, you really are getting value for money.

See our FAQ on the question of whether barristers should lease or buy.

What about cars already bought/leased at 6 April 2009?

Basically, for cars bought before this date, the old rules will continue to apply – they will obtain a 20% annual allowance for a transitional period of approximately five years. The maximum annual allowance will also continue to be capped at £3,000 for ‘expensive’ cars. Cars leased before 6 April 2009 will continue to be subject to the ‘expensive’ car leasing adjustment, with tax-allowable leasing costs restricted if the retail price when new exceeded £12,000.

Note!

These rules do not apply to motorcycles and therefore they now qualify for the annual investment allowance (up to £50,000)!

Investments: it’s not all doom and gloom

An insight from Paul Rosson, Cassons Director of Financial Services

Many savers that I have spoken to recently are disappointed with the interest they are receiving from their savings accounts. But with the Bank of England base rate at 0.5%, banks are struggling to offer anything more. The best savers can achieve at the moment is a rate of interest of about 4%.

It may come as a surprise that fantastic returns are, however, being achieved from the one place that many savers are completely avoiding - stocks & shares!

There has been a lot of talk in the news over the past year saying that global stock markets have been in freefall and that the last place people should be investing is in stocks and shares.

I’ve heard reports claiming that it could take more than 10 years for the markets to recover, so it’s not surprising when you speak to savers that the last place they would think of investing would be in stocks and shares.

But, over the past 6 months, the UK Stock Market (FTSE 100) has in fact risen by over 38% and, in addition to the capital growth in their investment; investors have been receiving dividends as well.

In our experience many investors are simply fed up of the poor rates available on deposit accounts and are turning to stocks and shares to improve their returns. Judging by recent performance, that was a good decision.

It is worth bearing in mind, however, that investing in stocks and shares is risky and you may not get back the full amount that you invest. We suggest that professional financial advice is taken and rather than investing directly into stocks and shares, you could try collective investment funds which are managed on your behalf and are usually far less risky than individual stocks and shares.

Client spotlight: Lorraine Mensah

Just who is Lorraine Mensah?

You may have noticed our advertising which has been running in Counsel magazine every month since last summer. One of the barristers we have featured has been Lorraine Mensah, which has led barristers outside the North West to ask “Just who is Lorraine Mensah?” Well we interviewed her recently and here is the result!

Lorraine Mensah
India Buildings Chambers, Liverpool

Friendly to speak to, with an unaffected Liverpool accent, Lorraine is refreshingly down to earth. Brought up in Halewood, in the shadow of the famous Ford car factory, Lorraine was educated at the local comprehensive school in Halewood before studying at Liverpool University. The only time she left her home city was to study for her Bar finals in London. And, in case you are wondering, she supports Liverpool FC and not Everton!

Lorraine always wanted to be a barrister but because of the difficulties in obtaining a pupillage she started her career with Jackson and Canter Solicitors in Liverpool. The firm has the largest immigration practice in the North West. Lorraine started as a paralegal in 1997. As she says: “My roots are in immigration law”. She has carried this experience through to the Bar. She is now a member of India Buildings Chambers situated close to the Liverpool law courts.

Immigration law appeals to Lorraine because it reacts to world affairs. She explains: “If there is a problem in Sudan, I deal with people from that area. It gives me a more intense and deeper understanding of world affairs.” Although she is sympathetic to the plight of victims of war and those that are devastated economically she also appreciates that there has to be some sort of control.

As an immigration barrister it is Lorraine’s job to put her client’s best case forward. But she also sits as an Immigration Judge and then it is up to her to decide if a request for immigration is genuine.

Another specialism of Lorraine’s is personal injury. She deals with everything from road traffic accidents to workplace or public place injuries. Although we have become more health and safety conscious, Lorraine says injury claims are a growing sector because people are more aware of their rights. She says: “This work is very rewarding if someone deserving gets money for what they have gone through.”

Clearly Lorraine is a very busy lady! So it suits her to have an accountant who can relieve her of some of life’s pressures. She changed to Cassons three years ago and has not looked back. Andrew Hood, Cassons Bar Department manager, looks after her accounts. Lorraine says: “With my previous accountants I had to provide all the final figures for my accounts. When I first came to Cassons Andrew reviewed all of my affairs like a magician.  I was able to organise my financial position and have a wonderful wedding! Now, I give Cassons the documentation and they come up with the figures. They tell me what I need to pay and what I don’t need to pay. I am a very busy barrister and I don’t have time to do my own figures!”

As well as being free of paperwork, Lorraine is also free to ask Andrew any questions on her mind. She says: “If I asked my previous accountant a question I was charged. I can ring Andrew with any question regarding my financial position and I know that there will not be any extra cost.” Lorraine is also very relaxed speaking to Andrew. She says: “We get on so well that I invited him to my wedding.”

Andrew explained: “Lorraine is a typical barrister in that she is very busy and prefers to spend her time practising law, not working out her accounts! I try to make her life as easy as possible by simply dealing with it all for her. I often meet up with Lorraine when she is in Manchester, otherwise I’ll go to Liverpool. We then have the official handover of the shoe box stuffed with her receipts! Once I have that we can look after her bookkeeping and VAT return which means that her year-end accounts and projection of her tax liabilities are very easy to calculate. When Lorraine first came to us I had to carry out a huge review of her tax affairs so we like to keep well on top of it all for her now.”

Lorraine enjoys DIY and gardening in her spare time. She also likes walking her dog and taking walking holidays with her husband. She retains her maiden name for professional purposes and is also proud that it reminds her of her Ghanaian grandfather. She might be interested that John Mensah is currently captain of the Ghana football team!

Cassons spotlight: Andrew Hood

Featured in some of the Counsel ads with Lorraine is Andrew Hood, probably already known to you as our Bar Department manager. Let’s find out what he has been up to recently!

A superfit accountant made sure all the numbers added up when he took part in a gruelling fitness challenge. Andrew Hood, 41, who is Cassons’ Bar Department manager, successfully completed the Snowdonia Challenge on Saturday 13 June 2009.

He said: “We set off at 7.26am on Saturday morning on a 20 mile bike ride before running up and down Snowdon, which took just over three hours. That was followed by another 10 miles on the bike, 2.5 miles kayak and a final nine mile bike ride, which included a five-mile uphill section.”

Andrew was part of a four person team for the charity event on June 13 and they all had to finish together for their time to be recorded. The other team members were Andrew’s partner Karen Gande, her friend Tracey Hough and Andrew’s friend Andrew Dodd.

Together they raised £3,400 for Regain, which is the only charitable organisation dedicated solely to improving the independence of all British men and women who have become tetraplegic (sometimes referred to as quadriplegic) as a result of a competitive sports injury. The charity provides them with the specialist equipment they need to enable them to achieve greater independence and improve their quality of life.

The team (one of 44 to take part) completed the challenge in seven hours and 50 minutes. Andrew continued: “I thoroughly enjoyed it and would definitely do it again. At one point we were doing 41 miles an hour on the downhill section and actually overtook a car! I didn’t really hit the pain barrier during the challenge, although I felt pretty stiff the day after. I never thought it would be too tough to complete because we had been training together for months on the Pennines.”

Andrew is now looking for another challenge. “I’ve thought about the Yorkshire Dales Three Peaks challenge but I think that could be a bit too straightforward and I would prefer a multi-discipline event.”

This newsletter is for general guidance only

You should not rely on it without taking individual advice based on the full facts of your case.  Information given is correct at the time of publication.

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