Legal aid firms face taxing times

Legal aid firms look set for a turbulent sailing this year. Firms are still dazed by the speed of Lord Irvine's proposed reforms on legal aid and are anxiously awaiting the outcome of the current consultations.

Meanwhile proposed changes to the way professional partnerships are taxed have further nasty surprises in store for the profession.

In a surprising turn of events the Inland Revenue came up with a corker over Christmas which will have major implications for many, and will undoubtedly test the mettle of accounting systems across the country.

Not only have lawyers had to deal with the intricacies of self-assessment, they will now have to cope with a further change to their tax regime.

It is somewhat ironic that, at a time when the Government is calling on legal aid firms to gamble their own money on legal aid cases, these moves will reduce their cash flow.

In a further ironic twist, legal aid firms will suffer more than most due to the exceedingly long periods of time that it takes to get payment from the Government. Under the new regime of being taxed on work in progress, this will mean that they are being taxed on monies not yet received from the Government.

However, ensuring that firms are actually geared up to deal with these new changes is where the real problems lie. Most firms have computerised accounting systems at the moment. Under the new regulations, the systems will need to be centralised and firms will have to undergo full audits.

These new demands will inevitably impose further burdens on lawyers who must get to grips as never before with the business aspects of their practices. The legal profession has never had to be more business-minded and commercially-aware than it does today.