Firm News
jump in demand for borrowing from law firms to fund tax bills
Firms expected to pay higher rate of tax for first time- 21% rise in amount of funding required...
Demand from partners at law firms for finance in order to meet their first ever 50p tax payment is surging ahead of the critical January 31 tax payment deadline, says Syscap, a leading independent finance provider.
Whilst employees have been paying the 50p rate for a year, partners and sole traders will make their first payment on January 31st. This payment will be roughly half their tax bill for all of the last year.
Because of the increase in the upper rate tax from 40p to 50p the shock to the cash flow of law firms and their partners will be far greater than normal.
Comments Philip White, Chief Executive of Syscap: “Since the recession, an increasing number of law firms have been asking us for specific funding to pay their tax bills.”
“This year demand for tax funding has been boosted by the far bigger percentage of income that higher earning lawyers have to pay in taxes.”
“A lot of individual partners are finding the fall in their post-tax income difficult to adjust to – leaving them with little free cash with which to pay their semi-annual tax bill.”
According to Syscap, the average tax liability per partner that a law firm is looking to borrow has jumped by 21% to £36,500 this year, up from £30,100 in 2010.
Syscap says that the main banks have spent the last three years reducing overdraft facilities to many law firms and are increasingly asking Partners to personally guarantee loans.
Philip White, adds “Banks have to reserve capital against overdraft facilities even when that facility is not being used – that has acted as an incentive on banks to reduce those overdraft facilities.”
Syscap also says that HM Revenue & Customs is less prepared than it was a year ago to allow firms to defer tax payments under its ‘Time to Pay’ scheme.
Explains Philip White: “Law firms that do try to defer their tax payments under the “Time to Pay” scheme will find that HMRC expects the business to go to pretty extreme lengths before they will agree a deferment.”
“For example, HMRC will ask businesses, including law firms, to sell “non-essential assets” to pay their tax or to pay the tax using their credit card – where interest rates average over 11%.”
“Normally law firms might just go to their bank but many outside the very top tier are finding that the bank they have been with for years is no longer interested in lending at a sensible rate or that they want to tack on huge arrangement fees even for small loans.”
“A number of high profile insolvencies in the professional services sector such as Halliwells, Vantis and DTZ have led to many low risk law firms being shunned by those lenders that have already had their fingers burnt.”
COMMENTS
Add a comment...