There is no one structure that suits all businesses, with professional practices operating as partnerships, limited liability partnerships and limited companies. This has been further highlighted through the difficulties of borrowing to fund partners capital, succession planning and the 50% tax rate and loss of personal allowances. A strategy of growth requires funding, often through the retention of profits. A corporate partner may reduce the tax burden on partnerships who are unable to distribute all profits.
The recognition of revenue for a professional practice continues to be one of the most subjective areas when preparing accounts. To comply with accounting standards revenue has to be recognised as it is earned but as with all earnings directly related to a service it remains difficult to evaluate how much work has actually been completed and what the eventual outcome may be. To add to the uncertainty there may be questions over entitlement to all or part of contracted income, especially if income is dependent upon a future event or successful outcome.
The requirements of the new SRA handbook are likely to increase the level of regulation for legal practices, with the regulator expecting firms to comply with ten mandatory principles. Solicitors will be expected to be able to demonstrate that they have complied with these principles, as well as formally appointing a Compliance Officer for Legal Practice and a Compliance Officer for Finance and Administration. One significant change is the requirement to “run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”. Moore Stephens’ Governance, Risk and Assurance group can provide specialist guidance in this area.
2011 has also introduced fundamental changes to the ownership requirements of legal practices, including the potential to obtain finance from third party equity investors.
The recently decided case involving Capita and Drivers Jonas has highlighted, once again, the risks that surveyors undertake when carrying out valuation work.
IT consultants and developers
This area has shown substantial growth in the last decade with the ever increasing use of web technology, data bases and secure on line payments. Clients want to maximise tax relief on research and development (R&D) and also identify when R&D can be capitalised. With the consolidation taking place in the sector there are many companies making acquisitions with resulting acquired goodwill as well as newly identified intangibles relating to R&D previously written off.