Taxpayers have the right to select their own year end and this is no different for barristers. However, which year end you choose can have implications for the amount of tax you are liable for.
In the latest article from our series of FAQs on Barrister accounts, we look at how your choice of year end could impact you later in your career.
Accounting year end
The assessable profits for tax purposes are those for the selected accounting year ending during the tax year to 5 April.
If the chosen year end is after 5 April then some profits are taxed twice in the first period to 5 April.
The profits taxed twice are called “Overlap Relief” and can be deducted when self-assessment ceases. Overlap Relief is not indexed for inflation so can become worth less and less as time goes on.
Good to know: Private individuals pay tax on their taxable profits. These are likely to be different from their accounting profits and their drawings.
When is tax payable?
Tax is payable on 31 January and 31 July each year. It is based upon half the previous year's tax due with any adjustment adding to the following January payment.
In the early years at the bar, with income on the increase, the balancing payment in January can be sizeable and it also increases the payment on account.
Tax considerations for barristers
For barristers, there is the concession that debtors and work in progress do not have to be accounted for in the first 7 years at the bar. This is not available if trading as a Limited company. After 7 years the debtors are brought to account by a “catch up charge” over a maximum of the next 10 years. Work in progress must also be introduced, normally over three years.
Planning point: You can accelerate the catch up charge during a period of low earnings, such as when on maternity leave.
Planning point: The cash basis of accounting is available to all tax payers within limits. Consider moving to this if you are outside the limits but fall back to within them.
Are you a Barrister looking for help with your accounts and financial planning?
We have specific experience in barrister accounts. Download our helpful guide to barrister accounts and taxation for more information, or contact us on 0115 964 8888 or email at firstname.lastname@example.org for a no obligation chat.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.