LLPs may increase tax bills for practices>

A leading legal auditor has warned law practices of a serious problem in the Government's just-published prop- osals for limited liability partnerships (LLPs).

Jersey has already introduced LLP legislation, and the latest proposals by the Department of Trade and Industry are aimed at encouraging large firms of lawyers and accountants to stay in the UK.

Last week, The Lawyer revealed law firms' concerns about proposals to allow liquidators to claw back excessive partnership earnings drawn for the two years before the collapse of a firm and make partners liable for a firm's liquid- ation up to five years after they have left it.

Now, the head of legal audit at Deloitte & Touche, Nigel Davey, has raised an additional problem. Although they draw up annual accounts, law firms do not generally make them publicly available and they do not have to be fully audited, with a signed statement by an independent auditor, stating that they are “true and fair”.

To avoid a heavy tax bill, law firms currently do not include in their annual profit and loss accounts the “work in progress” – work which they have not yet billed for – or some of their debts.

But under government proposals, LLPs will have to publish fully-audited accounts.

Davey said: “The proposals imply accounts will have to be fully audited. For accountants to sign them off as true and fair, work in progress and debts will have to be included. That will mean a bigger tax bill.”

Tony Sacker, partnership lawyer at Kingsley Napley, agreed. “You are talking about serious amounts of money,” he said.

The Government also announced last week that it was asking the Law Commission to review the Partnership Act of 1890 and the Limited Partnership Act of 1907 alongside the proposed LLP legislation to see if it could be applied to small owner-managed businesses. At present, they have to form companies to limit their liability.

Sacker commented: “The partnership framework rather than the company model is the logical arrangement for small owner-managed businesses.”