One of the UK’s top accountancy firms, Baker Tilly, is warning professional services firms to review their billing procedures, after new rules were introduced which could accelerate tax charges.
The biggest danger, according to the top ten accountancy firm, is that Scottish law firms could end up being taxed for work they haven’t even billed.
The changes come to the Accounting Standard FR5: Reporting the Substance of Transactions and the new rules now apply to all firms for accounting and tax purposes. The changes require firms to recognise more profits before work for clients has been completed.
Speaking recently of the changes, Ricky Murray, Partner and Professional Practices specialist at Baker Tilly, said: “These changes are likely to draw partially completed tax work within the charge to tax, producing additional tax liabilities, but no extra cash to pay them. We suggest firms revise their terms of engagement to minimise the acceleration of tax without overtly prejudicing their commercial interests. If a firm is going to be taxed it might as well agree with clients that it can send them a bill for work done, even though it hasn’t all been completed.”