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Accounting for
new start law firms

Understanding your accounting responsibilities.

Accounting for new start law firms can be a very steep learning curve. There is a whole range of regulations to follow and niceties to be observed. Getting expert advice from the outset will ensure that the SRA / Law Society of Scotland and HMRC are kept onside.

Here are the basics that you need to consider:

Setting up bank accounts.

You’ll need to set up a minimum of two bank accounts – one business account and one client account. This may sound like a simple process however, the recent experience of some of our clients indicates that it can be a little tortuous. There are AML and identity checks to go through as well as the post-covid sluggishness of UK banks.

Creating a cashflow forecast.

No business ever went bust because it made a loss. Even profitable businesses have gone into administration for the simple reason that they didn’t have the cash to pay the bills. That’s why cashflow is vitally important.

Accounting for new start law firms HMRC

The legal regulatory authorities and your bank / funder will both wish to see a well thought out, realistic cashflow forecast as a matter of course. If the type of legal services you offer involves protracted timescales from instruction to completion, make sure you have a clear cut interim billing procedure in place so that you can cover your ongoing direct costs and overheads.

Registering for self-assessment.

This means that once a year you will have to file a set of accounts covering your income and expenditure. HMRC will use this to assess your personal tax liability. Sole traders, company directors and partners (dependent upon which form of legal entity you choose) must register for self-assessment.

Producing annual accounts.

On the subject of accounts, if you opt to become a limited company or limited liability partnership, you will have to submit annual accounts to Companies House. Typically, these include records of your business expenses, income and other transactions. Sole traders and non-LLP partnerships should also prepare accounts for submission to HMRC. We advise that you prepare accounts with the assistance of a qualified accountant.

Recording financial transactions.

Regular recording of financial transactions throughout the year is both a must do and a legal requirement. Well kept, up-to-date records will make the process simpler for your accountant and help you keep abreast of your financial situation at any given time. Good practice management accounting software should enable you to do this with ease.

Registering for VAT and Corporation Tax.

Accounting for new start law firms

If your annual income exceeds the VAT threshold, VAT registration is mandatory and you must charge VAT on all your bills. This is a specialist accounting area and you should seek advice from a specialist to handle VAT.

If you are a limited company, you are automatically registered for Corporation Tax. Your assessment following submission of your annual accounts will determine the size of your bill.

Setting up a payroll system.

If you are a sole trader, you will need to set up a payroll system. If you are not, it is advisable to set up a payroll scheme for tax reasons. Payroll compliance can create myriad problems for the inexperienced. Our strong advice is to seek help from your accountant to get the ball rolling.

Managing Business Rates.

Lastly, business rates. These are a tax on any business premises you either own or rent and they are charged annually by your local authority. If you work from home or virtually, it is unlikely you will have to pay.

Help from LawStart with accounting for new start law firms.

As we mentioned earlier, the starting point for getting your accountancy systems and requirements in place is good practice management and accounts software. Please contact us for help with this.

In addition, we have a roster of accountants, tax and payroll practitioners who specialise in managing the needs of legal practices as well as a sister company that provides outsourced cashiering and accounts. Again, please contact us for a recommendation by following the button below.

Cloud Software

Cloud-based practice management solutions.

Cashroom

Cashiering and bookkeeping services.

Accounts

Accounts, tax advice and cashflow forecasting.

Legal

Company and partnership formation.

Marketing

Helping you to build your new legal business.

HR

Human resources and contract advice.

Community

Access to like-minded legal entrepreneurs.

Virtual Office

Mailing, telephony and secretarial support.

Let’s start a conversation…

If you are seriously considering branching out on your own, please contact one of our professional advisors. We have years of experience working with new start law firms and will be happy to provide practical advice and a no commitment assessment of your needs.

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