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This year, The Lawyer’s annual ranking of the largest UK law firms by turnover is available as an interactive, digital benchmarking tool. For the first time this will allow you to manipulate each data set against the metrics of your choice.
DLA Piper leads the pack as top City firms examine alternatives to Labour’s new tax regime
Some of the UK’s largest firms are considering saving millions in tax payments by moving to a new financial year to avoid the 50 per cent top tax rate.
An earlier March year-end would allow firms to benefit from another 11 months at 40 per cent before the new rate comes into force in April 2010.
Allen & Overy (A&O), Ashurst, CMS Cameron McKenna, DLA Piper, Lovells and Simmons & Simmons all confirmed that they were considering the change.
DLA Piper is weighing up bringing its tax year in line with the calendar year, which it uses for management purposes. The move would allow just eight months of 40 per cent tax, until December 2009, but would remove the need for two financial years.
DLA Piper chief financial officer Paul Edwards said: “We’re having a more balanced debate than most firms. We’d have the added advantage of having one year-end. At the moment we deal with two.”
However, many firms are likely to be put off by the cashflow implications of moving away from the traditional April year-end.
Firms with a financial year closing on 30 April are able to defer tax payments on any rise in profits by 21 months, but those switching to March would have to pay all the tax within a year.
Norton Rose CEO Peter Martyr said the firm had looked closely at the idea but decided not to pursue it.
He added: “If tax rates change again you’d be stuck with a major cashflow disadvantage and you wouldn’t be able to make another change for five years.”
But the savings could be considerable. If A&O, for example, switched its accounting period, it would save more than £43m.
A&O financial director Ian Dinwiddie said: “I suspect all law firms are looking at changing their year-end. We haven’t made a decision, but it’s unlikely. The reason is that, if you do, for ever after you pay tax closer to the year-end.”
BDO Stoy Hayward tax partner Colin Ives has been advising several firms on the issue.
He said interest rates were also a factor for firms that hold cash at bank for tax purposes, adding: “If you’re a cash-rich firm, you’re only going to get 1 or 2 per cent on those funds. You might as well pay the tax upfront and take the tax saving [with a March year-end].
“If the firm’s funded by borrowed funds the position is less clear and a bit of a gamble.”