The odds of ends

The last time DLA Piper tried to save itself a few quid it had the legal market up in arms. This time the negative PR could be even worse.

The firm is one of a group of market leaders ­considering shifting the date of their financial year-ends. If ­implemented, most disinterested observers would regard this as a rather cynical attempt to maintain profit at as high a level as ­possible.

Now there’s nothing wrong with changing your year-end. This is not some dodgy tax evasion scheme, it’s merely deferring the inevitable.

But the negative fallout for any firm chock full of partners earning more than £150,000 and looking to arbitrage their tax rate could be considerable.

Arguably, DLA Piper could suffer more of a ­backlash than most were it to implement the tweak and, in its case, bring its financial year into line with the US end of the business.

Surely there were enough ‘fat cat’ comments ­levelled at the firm in March – when The Lawyer reported (16 March) it had offered the ­statutory ­minimum compensation to the lawyers and staff it was laying off – to give Sir Nigel & Co pause?

So this is the context of the firm’s current mulling of the pros and cons of deferring the impact of the new 50 per cent top rate of tax.

Changing the year-end date is relatively easy to do. But there are two potential problems. First, the firm would accelerate its tax payment by a year, ­creating funding issues.

The real issue, however, is what happens if the rate comes down. Then, as one City tax partner puts it, “you’re doubly screwed”.

The hope for many in the City is that if the ­Conservatives win power next year one of their first acts will be to cut the top rate of income tax.

Any firm that has shifted its year-end, however, would be left paying tax at 50 per cent and there would be nothing it could do about it.

If you take the view that rates are only ever going to go up, then this might be worth doing. But frankly, that’s not very likely.

And in a year when profits have been tumbling, is it really worth the hassle?

matt.byrne@thelawyer.com