This guidance note covers the different types of contractual conditions under which solicitors or barristers earn income and when that income is recognised for accounting and tax purposes. Except where the business uses the cash basis to calculate the taxable profits, the starting point is the requirement to calculate profits in accordance with generally accepted accounting practice (ITTOIA 2005, s 25). HMRC therefore considers that the tax treatment depends on the correct application of GAAP to the facts and circumstances.

Professional income can arise from the following contractual conditions:

1. •

   continuing service contracts, which are continuous engagements advising clients ― under these contracts the professional firm performs work on an ongoing basis throughout the compliance period

2. •

   one-off transactional contracts, which are single standalone transactions, where invoices are issued on completion of the task

3. •

   contingent fees, where the level of the fee is determined by a third party event; under such arrangements the firm’s fees are often set so that they would obtain no reward if the venture is unsuccessful

4. •

   retainer fees, where