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The legal profession can be an unusual one as far as accountancy goes, and it is important to engage with an accountancy firm that understands the sector, as well as your particular business.

How is your legal firm structured?

The catchall phrase ‘firm’ can apply to a wide variety of different businesses working in the legal sector. Without a doubt the most common is the partnership. Whilst this might be as small as two people working together in a small firm, it can just as easily be a large enterprise with hundreds of partners.

That said, a law firm could also be a limited company with external shareholders as investors, or with directors who are also the owners. And of course, a single lawyer or barrister could easily set up shop on their own account with just themselves in the business, possibly with the addition of a paralegal or administrator.

What’s important to note is that the accounting and taxation process for your legal firm depends on how you structure the business. For instance, a limited company pays Corporation Tax, whilst it’s directors must make Self Assessment submissions for their personal income. Your choice of business structure can even impact how tax efficient the business is!

 

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What accountancy services does a law firm need?

At its most basic level, accountancy for the legal sector can be as simple as providing basic bookkeeping services. This might include logging invoices and bank transactions on an accounting system or following up overdue bills.

In a larger legal practice, you may need payroll administration to deal with paying staff wages correctly, PAYE, and pensions.

And of course, regardless of the structure, your law firm should have processes in place to close off one financial year, and start the next. Depending on the business this might involve sending a sole trader or partnership Self Assessment return (and separate ones for each partner!), or preparing accounts and a CT600 company tax return.

You can even get help with management accounts, and strategic planning such as budgeting and forecasting, or investment planning.

The accounting services that your law firm needs are very likely to change as your business develops. If you’re considering your long-term options, look at accounting practices offering ‘room to grow’, so you can add (or remove) additional services as needed.

Accountancy isn’t just for the lawyer

One of the key areas that legal firms differ from other sectors is that they often need to collaborate with a trusted accountant on their client’s affairs. The important word there is ‘trusted’. There can be nothing worse than making a recommendation to a client, and finding out that the person has made a mess of things!

So, the accountant must be up to speed on all of the latest rules and regulations, as well as approachable and attentive to the client’s needs. After all, it is not much use if the accountant knows everything about the tax impact of selling a limited company, but doesn’t answer the phone!

A good accountant will be able to work with you across a range of areas, not just your day-to-day accounting needs. For instance:

Not only is a good accountant useful in terms of client relations, but they can also provide extra services that you can offer your client base.

How do you choose an accountant for a legal firm?

We’re big believers in working with people that you know and trust. You have to be sure that the accountant you choose will be responsive to both your and your clients’ needs.

How do I check an accountant?

It goes without saying that the accountant you choose must be appropriately qualified. Given that in the UK, anyone can call themselves an ‘accountant’, it pays to check their references!

Your accountant should be an accredited member of one of the big professional accountancy bodies such as ACCA, ICEAW or CIMA. These impose strict rules around practice management and ethics.

Can they cope with the work?

Although it may be tempting to choose a tiny practice where you’re a major client, it also pays to make sure there’s cover if someone goes on holiday or becomes unwell. The accountancy firm you go with should have enough qualified accountants to provide a pool of experience for you to tap into.

Which leads us to our next point. It makes life much easier if your accountant can provide all of the services that you need! Things get confusing if one firm takes care of your VAT return, whilst another deals with payroll.

 

Learn more about our accounting services for legal professionals and law firms. Call 020 3355 4047 to chat to the team, or get an instant quote online.

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