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The Bar Standards Board (BSB) has submitted its application to regulate new business entities but stopped short of alternative business structures (ABSs). Is this a missed opportunity? Tony Williams, founder and principal of Jomati Consultants, and Toby Tallon, partner in the London office of Smith & Williamson, give us their thoughts.
What is the significance of the BSB applying to regulate new business entities?
Toby Tallon (TT): The BSB application on 27 June 2014 cites three criteria as its rationale for wanting to regulate new business entities:
• choice, and
• cost effectiveness
Up until now, barristers (unless they were employed as in-house counsel) could only practice as sole traders. Once entity regulation approval has been granted, barristers will have the same choices as other professionals to select the best structure in which to deliver their services. This may be to remain as a sole trader, but they will also have the choice of partnership, limited liability partnership (LLP) or a company. The advantages of such structures are that they could allow for a measure of limited liability and will also provide them with more flexibility in terms of their tax management.
Historically, barristers used to be taxed on their receipts. With the introduction of generally accepted accounting practice (GAAP) for barristers in the Finance Act 1998, they began to be taxed on their debtors and on their work in progress – so effectively on income they had not yet received. If a barrister takes advantage of the entity regulation changes to practice via a company, their profits will be taxed at the corporate tax rate of 20% or 21%. In addition, the company will effectively keep a tax reserve within the structure to pay the tax liability. However, additional tax may be due on amounts withdrawn from the company, depending on how and when the withdrawals are made.
Tony Williams (TW): This is an important development, although it is not quite as seismic as we may have hoped in that
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