6 March 2019
Understanding Cash Accounting for Barristers
As a barrister, profits may be calculated in one of three ways; the ‘Old’ Cash Basis, the Earnings Basis and the ‘New’ Cash Basis. In our series of Barrister FAQs, we’ve talked about ‘What is Cash Basis Accounting? In this article we provide a helpful overview of each kind, for you to establish which system is right for you.
What are the different types of accounting for barristers?
The ‘Old’ Barrister Cash Basis
The old Cash Basis was withdrawn in the Finance Act 2013 with a retrospective effect from 6th April 2013. This basis can now only be used by barristers who used this basis for the accounting tax year 2012/13. This basis granted barristers, during their first seven years of trading, the opportunity to calculate their income and expenditure as it was received.
The Earnings Basis
The Earnings Basis taxes barristers on the billable value of their work, whether paid or not. This basis results in including debtors and work in progress to their accounts. Expenditure is relieved when incurred, whether settled or not by the end of the accounting period.
The ‘New’ Cash Basis
This new Cash Basis replaced the previous one and was available to barristers with effect from the tax year 2013/14. It became more attractive for barristers when the limits were uplifted in 2017/18.
Unlike the ‘Old’ Cash Basis, there is no seven-year time limit on its use, but there are entry and exit thresholds based on the level of fees received.
Principal features of the New Cash Basis accounting include:
- Entry threshold for receipts to be below £150,000 for 2017/18 or the pro-rated equivalent where the accounting period is less than a year (however, this is not pro-rated where the accounting period exceeds twelve months).
- Expenditure includes assets that otherwise would be claimed on such business capital expenditure.
- An election must be made in each tax return for which it applies. From 2013/14, tax returns include a box to tick for this purpose.
- The exit threshold for fees received is £300,000 for 2017/18 onwards. If you exceed this amount you will have to move onto the Earnings Basis, unless fees received in the subsequent accounting period fall back below the entry threshold.
We would recommend if you are to use this basis to either contact us, or read the HMRC guidelines to confirm your eligibility.
For further information, please download RWB's comprehensive guide for barrister accounts and taxation.
Are you a Barrister looking for help with your accounts and financial planning?
RWB Director, Nick Bonnello, specialises in barrister accounts. Contact Nick on 0115 964 8860 or email nickb@rwbca.co.uk to understand how you can become more tax efficient.
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.