Inland Revenue pursues barristers for undeclared booty

Thousands of barristers face being investigated by the Inland Revenue for failing to declare their cash reserves for taxation

According to the latest figures published in the BDO Stoy Hayward report on the 2001 survey of barristers' chambers, only 14-15 per cent of chambers have made their surplus liable for tax. The Inland Revenue started pursuing chambers two years ago.
Mark Green, an accountant with Stoy Hayward, the Bar's principal accountant, says the surplus “could have been accumulated over five years or more” and that the amount liable for tax “could be getting into the millions”.
Reserves are also known as advance contributions. These form part of a barristers' 'chambers contribution' – the annual percentage charge on a barrister's earnings, which funds the running of chambers. Normally, the reserves are placed in a bank account, where they accumulate taxable interest.
An Inland Revenue spokesman said: “The onus is on [the barrister] to declare. Ignorance isn't an excuse.” Those who do not pay are subject to interest and penalties, he added.
The number of sets with reserves is not known at present, because not all chambers have informed their accountant or the Inland Revenue.
Those sets that have cooperated with the tax authorities have set up either a service company (equivalent to a limited company) or a trade protection association (TPA). Stoy Hayward's 2001 report says that 3 per cent of chambers have a TPA and 11-12 per cent a service company. Green said chambers have been slow in setting up an association or company because “as an organisation they move quite slowly, as decision-making is one of reaching a consensus”.
Chambers have to set up a company to enable reserves to be taxed, otherwise reserves effectively remain in barristers' hands. The surplus is taxed through the TPA or service company rather than the chambers and is subject to corporation tax of 20 per cent, rather than the income tax rate of up to 40 per cent.
Green said barristers are exempt from paying tax on contributions if they are spent in the financial year they are received by chambers, but liable for those spent outside that period. He explains that barristers are supposed to inform their financial advisers about their taxable earnings, which form part of a chambers' reserve pot; however, he remarks that some are “economical with the truth”.