counting the new entity regulation savings...our team has the experience and expertise to help you...

www.mitchellcharlesworth.co.ukChester 01244 323 051 | Liverpool 0151 255 2300 | Manchester 0161 817 6100 | Warrington 01925 635 141 | Widnes 0151 423 7500

Counting the new Entity Regulation savingsA guide for Barristers who are considering Incorporation

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The Bar Standards Board now has the ability to regulate entities meaning that they are now accepting applications for incorporated practices. Applications are expected to be authorised from April 2015.

Mitchell Charlesworth Considering Incorporation

Overview of the new regulations.

As a Barrister, your self employed status has meant contending with the tax burden that this brings.

However, the new regulations which were announced in September 2014 will give scope for significant tax savings and the protection of limited liability if you become a Limited Company. Now is the time to consider the best option for you and other Barristers in your Chamber.

Mitchell Charlesworth acts for Barristers in many North West Chambers and has advised our clients on the best way to manage their obligations for many years. Our team has the experience and expertise to help you set up your business entity as well as support you when running the business.

This guide has been created to give you an overview of the considerations and processes of setting up a Limited Company in accordance with the BSB. There are other alternative structures such as a Partnership or Limited Liability Partnership (LLP), however, we advise our Barrister clients to choose a Limited Company entity as this gives the best tax advantages.

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Pros and Cons of setting up a limited business

The table below gives you an insight into pros and cons of setting up a limited business.

Before you decide on choosing the Incorporation route, Mitchell Charlesworth advises that a thorough Financial Review is completed. As an independent advisor to the legal sector we can advise you correctly and ensure you make the right decision.

To incorporate you must generate a profit of £50,000 before even considering converting and you need to understand how your salary and dividend will interact. They must be balanced to successfully run your business i.e. the salary and pension contributions with the dividends your new company pays to shareholders.

Pros Cons

Limited liability status.

Significant tax savings when compared to a self employed sole trader.

Unused tax allowances can therefore be used to maximise the amount of money that can be extracted from the company.

Only pay Corporation Tax once a year.

Dividends paid from a Limited Company do not attract employee’s or employer’s National Insurance which a salary does.

You can retain profit in the company as the salary and dividend are paid separately, you can manage the timings of the payments. This allows you to minimise your tax liabilities.

You must complete a number of new start processes which can be an administrative burden including:

• Incorporating the Company.• Registering for VAT.• Setting up payroll and registering

for PAYE.• Registering for Corporation Tax.• Set up the best way to manage your

company records and books which may include sourcing a cloud based accounting platform.

More detailed accounts are necessary therefore your accounting costs will be higher.

Mitchell Charlesworth can take some of this burden away from you as part of our Start Up Services.


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Financial considerations

Salary payments

You obviously need to decide on how much your company will pay you so you can live comfortably on an annual basis; however this is an important consideration when it comes to tax planning.

Considering how you receive your salary needs to be discussed with a Tax advisor who can clearly state what you will be liable for and what would reduce your overall income and corporation tax bill.

As an example, the below table highlights the potential tax savings based on the current tax rates (2014/15).

Net Income Received

Income Tax and National Insurance

Corporate Tax Rate

Estimated Tax Savings

£50,000 £12,842 £9,188 £3,654

£100,000 £33,842 £29,188 £4,654

£150,000 £58,842 £53,027 £5,815

£200,000 £82,342 £74,461 £7,881

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Frequently asked questions What is an entity/what are the basic types of entity?

An entity is a legal person and can be a partnership, LLP or company.

The LSA also provides for a particular type of entity called an Alternative Business Structure (ABS) which has lay owners and managers. The BSB are not proposing to authorise ABSs yet. They will apply separately to the LSB to become a “licensing authority” of ABSs. In the meantime all owners and managers of BSB regulated entities must be authorised individuals, but they do not need to be barristers.

Every entity must also have a Head of Legal Practice (HOLP) and Head of Finance & Administration (HOFA) in place. In a single person entity this could be the same individual. The BSB Handbook defines a manager as a member of an LLP; a director of a company; a partner in a partnership; or in relation to any other body, a member of its governing body.

If I work via an entity can I continue my self-employed practice too?

You can continue to work in self-employed practice, but you will need to get a dual capacity practising certificate and make sure you comply with any Handbook requirements for dual capacity practice.

Can I keep my Chambers name?

Yes, but you need to make sure that clients are not confused about whether they are instructing an individual or an entity.

Does the cab rank rule apply to entities?

The cab rank rule applies in relation to referral instructions where a professional client seeks to instruct a specific authorised individual within an entity (this applies to any authorised individual in the entity, not just barristers).

Can my entity take pupils?

Yes, if it is authorised as an Approved Training Organisation by the BSB.

What effect does becoming a single person entity have on my Chambers?

It is up to Chambers to decide whether or not single-person entities can be members of Chambers, but there is no regulatory reason preventing you from continuing to work from Chambers.

How much does it cost to become an entity?

The BSB has provided the following pricing structure according to size entity:

Entity Category

Application Fee

Authorisation Fee

Total Authorisation Fee

Annual Fee

Single person £260 £330 £590 £365

2-5 person £725 £875 £1600 £1000

6-15 person (simple)

£1000 £1200 £2200 £1450

6-15 person (complex)

£1350 £1600 £2950 £2000

15+ person £1950 £2300 £4250 £2900

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BSB approach and activities required to set upThe application process is divided into five separate but inter-linked parts, each of which looks for different information to allow them to assess the suitability of your application for authorisation as an entity. Part E is removed if you do not want to complete litigation work.

Below are the parts of the application.

Part A - Entity and eligibility details

This is a general form about the individual and what entity they want to move to.

Part B - Management and governance processes

The form you complete at this point is probably the most important as it wants a business model, structure and full business plan. This will also include financials such as cash flow, profit and loss and balance sheet estimates.

Part C - Suitability of your Head of Legal Practice (HOLP) and Head of Finance and Administration (HOFA)

In the majority of cases these will be the same individual and they will already be approved by the BSB.

Part D - Declaration of truth

This part is the sign off declaration for all the above.

Part E - Litigation extension

To be completed by individuals who complete litigation.

You can download all the forms at each part of the process by following this link...

https://www.barstandardsboard.org.uk/regulatory-requirements/for-prospective-entities/entity-authorisation-application-process

Timescales

It is expected that applications to become a Limited Company will take approx. six months. However, it could be less initially and will be dependant on the volume of interest.

In busy periods, the decision process could be delayed to nine months.

https://www.barstandardsboard.org.uk/regulatory-requirements/for-prospective-entities/entity-authorisation-application-process

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The timeline for Incorporation

SET UP LIMITED COMPANYIncludes VAT registration, company payroll,

Individuals register for self assessment

GENERAL TIMELINE

APPROVAL RECEIVED AND TRADE COMMENCES

Business plan and financials

Application forms completed and reviewed and agreed

Awaiting application confirmation estimated

At this point we would discuss other initial actions you may wish to consider:

• Setting up your bank accounts

• Organising your accounting system

• Payroll processing, pension and P11d arrangements

• Arrangement of a shareholder agreement if a Limited Company

• Date you cease as a self employed Barrister and the Timing of Incorporation

ESTIMATED TIMES AFTER DAY ONE

AFTER TWO WEEKS

AFTER FOUR WEEKS

THREE TO SIX MONTHS

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How Mitchell Charlesworth can help

Mitchell Charlesworth is able to provide step by step support when incorporating including:

BSB application support Advice when setting up the new entity Limited Company Statutory Requirements Organising the VAT registration transfer Remuneration advice via salary and dividends Completing your Personal Tax return Completing your Corporate Tax return Running your Payroll to meet RTI requirements Guidance on Auto Enrolment obligations and creating a staging plan

Advice on record keeping

Fees - The total fee we charge is dependent on the advice required and the services used but our price rate is:


One off Cost - Advice and Service £ + VAT

Setting up the Limited Company 300

Creation of a Business Plan including risk review for the BSB

500

Payroll Set Up Costs 95

Total 895

Service / Advice £ + VAT

Accounts Preparation 1,375

Corporation Tax 200

Tax Return 175

Payroll and Auto Enrolment Obligations (£12.50 per month for payroll)

150

Total 1900

Tax Protection Insurance 160

Mitchell Charlesworth has a dedicated team of advisory professionals who support Barristers and Lawyers so they meet their Tax obligations but also have experience in guiding our clients through the transition to Limited Companies.

This guide should have given you an insight into the things you must consider when setting up a Limited Company and the team listed below can answer your questions to enable you to become a more profitable and tax efficient entity.

Alison Buckley Partner Tel: 0161 817 6100 Email: [email protected]

Rob Davies Partner Tel: 0151 423 7500 Email: [email protected]

Paul Durrance Partner Tel: 0151 255 2300 Email: [email protected]

Rob Hall Partner Tel: 01244 323 051 Email: [email protected]

Mike Buxton Associate Tel: 0151 255 2300 Email: [email protected]


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Contact Mitchell Charlesworth

Chester | Liverpool | Manchester | Warrington | Widnes

www.mitchellcharlesworth.co.uk

Whilst the information is believed to be true, the communication may not be comprehensive and recipients should not act upon it without seeking professional advice.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Mitchell Charlesworth is the trading name of Mitchell Charlesworth LLP, registered in England and Wales number OC391811. A list of members is available for inspection at our offices.

The Wealth Management division of Mitchell Charlesworth is authorised and regulated by the Financial Conduct Authority for investment business.

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MC Vanguard Corporate Finance Ltd is the Corporate Finance division of Mitchell Charlesworth and is licensed by the Institute of Chartered Accountants in England and Wales for the provision of certain investment services.

Mitchell Charlesworth LLP is a member of Kreston International - A global network of independent accounting firms.

counting the new entity regulation savings...our team has the experience and expertise to help you...

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