Many law practices in the UK could be subjected to a significant one-off tax bill this year as a result of changes in accounting procedures affecting work-in-progress.
According to legal practitioners, changes in the accounting treatment for revenue could affect the way in which firms and partnerships account for work-in-progress for which income has yet to be received. The resulting tax charge could represent up to half of a firm’s annual bill, experts have estimated.
The changes will affect regular partnerships, limited liability partnerships and companies, although it is thought that sole practitioners and regular partnerships will be hit particularly hard by the accounting adjustment, as they frequently have unbilled work-in-progress amounting to as much as three months input.
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