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Barrister:
How does the catch up charge affect me?

By concession, for the first seven years of practice you are entitled to prepare your annual accounts on the Cash Basis, which means that you account for income only when it is received and expenditure only when it is paid.

After seven years you must prepare your accounts on the normal basis, known as the Earnings Basis, which means you include income earned and expenditure incurred. These accounts must also show a “true and fair view” which means that, for most barristers, jobs completed or partially completed must be included as revenue earned.

Without the catch up adjustment, the change would give rise to a significant increase in taxable income in the eighth year. This is primarily because the addition of fees outstanding at the end of the year would fall to be taxed in addition to the fees actually received during that year. The catch up adjustment has the effect of smoothing the transition from the Cash Basis to the Earnings Basis.

In the year of change, the catch up adjustment is calculated by preparing accounts on both the Cash Basis and the Earnings Basis. The difference between the two is the catch up adjustment. This catch up adjustment is charged to tax by being added to profits over a period of up to ten years, normally 10% per annum.

In the year of transition, it is particularly important to calculate correctly the amounts to include for jobs completed and partially completed; also to make correct adjustment for amounts billed that may not be received in full. The art is to get these figures right for you whilst still being acceptable to HM Revenue & Customs. We then calculate the catch up adjustment and charge for you. In certain circumstances it may be beneficial to elect to pay tax on more than 10% of the adjustment; we can explain if and when this could be of benefit to you.

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