Accounting Tips for Newly Appointed Barristers
The accounting world might be intimidating to a newly appointed lawyer. This blog post is intended to assist you in navigating this uncharted environment and to provide you with some useful pointers along the way.
Barristers’ accounting is complicated by the fact that they receive money from a variety of sources, including general revenues from their profession, fees from cases they work on, honoraria for public speaking engagements, and so on.
Certain expenses, like as professional dues and subscriptions, may not be deducted at tax time if you are a barrister. As a result, it’s critical to keep track of all of these sources of income in order to reduce the amount of tax owing at the end of the year!
Congratulations if you have recently been appointed as a barrister! Our is an outstanding feat, and we hope that this essay will be of assistance to you. When it comes to becoming a barrister, there are a lot of things to think about, such as how to get your own chambers and what sort of accounting software to use.
We’ll go over the basics here, including how to set up your Xero account, how to comprehend the many types of accounts in Xero and where they’re placed in your dashboard, and how to organise bills if they pile up.
Accounting Tips For Newly Appointed Barristers
Congratulations if you’ve just finished your Readers’ Course and signed the Roll of Counsel! You certainly have a great deal of specialised legal knowledge and have put in a lot of effort to get to where you are now.
You will be required to operate your firm as a sole proprietor and obtain your own ABN if you are a barrister (Australian Business Number). It’s possible that during the course of your legal career, you’ve never served as a sole practitioner before (for example, you might have worked as an employed lawyer in a partnership or incorporated legal practice).
It is imperative that you keep yourself informed of any potential financial repercussions, even if you have previously worked as a sole proprietor. The following are some of the most helpful advice that we have regarding accounting for you.
Register for GST and keep cash-based records for it
When you register for GST, you’ll be able to claim “input tax credits” on your quarterly Business Activity Statement for the GST you pay on your business expenses (BAS). Each quarter, you must file your BAS with the Australian Taxation Office (ATO).
The simplest approach to account for GST on your income and expenses is to do so on a cash basis. This implies that you will:
- Only record GST income on your BAS when you get client payments (not when you send your invoice), and only report GST income on your BAS when you receive client payments (not when you send your invoice).
- Only record the GST component of your expenses when they are paid (not when you receive invoices with future payment dates).
Plan ahead for your initial tax bill
When you first begin working for yourself as a sole proprietor, you are required to report all of your profits on the individual tax return you submit at the end of the first fiscal year. This income will be subject to taxation at the highest rate applicable to your tax bracket, and you will be expected to make a full payment of the tax liability on the day that your tax return is due.
This one-time tax bill could be substantial, especially if:
- Early in the financial year, you begin operating as a sole-trading barrister; and/or
- You’ve previously worked for an incorporated legal practise and are accustomed to having your income taxed by your employer on a fortnightly or monthly basis under the pay-as-you-go (PAYG) system.
It’s critical to plan ahead for your first year as a barrister’s tax bill (for example, by estimating your likely income and the associated tax obligation and then regularly diverting an appropriate amount of funds to a separate bank account).
Keep in mind that your very first tax bill as a sole business or barrister is likely to be quite substantial, as it will cover all of your taxable income for a period of up to a year. After you have submitted your first yearly tax return, the ATO will send you a quarterly charge that is based on the taxable income you had during your first year. This will make it much simpler for you to prepare a budget that accounts for your taxes.
Claim all business-related expenses
Make sure you claim all of your company costs that are eligible. Consider the following scenario:
- Make sure you claim all of your company costs that are eligible. Consider the following scenario:
- Your cell phone service plan
- Expenses for a home office if you work from home on a regular basis
- Wigs, vests, and gowns are examples of specific clothes.
- Expenses associated with professional associations
- Subscriptions to legal books and journals.
- Premiums for professional indemnity and income protection insurance.
As a lawyer, you understand that tax minimisation is lawful and prudent, whereas tax avoidance is illegal and subject to severe penalties.
Take care to maintain accurate records
There are two key advantages of keeping solid records:
- It makes it considerably easier to prepare your quarterly company activity statements and annual tax returns.
- If you are ever audited by the ATO, it will assist you in proving your cost claims. After you file your BAS or tax return, you must preserve expense documents (such as invoices and bills) for at least five years. If you receive paper receipts, scan them to prevent them from fading over time.
Obtain the services of an accountant and a tax agent
- Ensuring that you are in conformity with ATO regulations.
- You’ll save time and be able to focus on what you do best.
- By maximising all of your eligible deductions, you can save money on taxes.
- Assisting you in the implementation of efficient record-keeping systems and procedures
- Extending the dates for filing BAS and filing tax returns with the ATO (the ATO imposes penalties for late lodgements and payments).
Contributions to a retirement plan can be deducted from your taxes
Your employer would have paid the 9.5 percent superannuation guarantee on your behalf if you had previously worked in an incorporated legal firm. When you become a sole trader, though, you must determine whether or not to make super contributions. There are two primary reasons for this:
- In Australia, super contributions and profits are taxed at a 15% concessional rate, which is lower than even the lowest marginal tax rate.
- Each year, you can deduct up to $25,000 in super contributions as a tax deduction. The concessional contributions cap is the name given to this amount.
Superannuation can be a tax-efficient strategy to create a retirement fund. However, you’ll need to speak with a knowledgeable financial advisor to learn more about superannuation.
Obtain the Appropriate Coverage Through Insurance
You probably already know that you need professional indemnity insurance to practise law, but you should also think about getting enough income protection insurance. If you are temporarily unable to practise law as a barrister owing to illness or accident, this will protect you.
Any insurance coverage for your business is also tax deductible.
Create a plan for your finances
Building and protecting your wealth necessitates the creation of a financial strategy. To assist you make sound financial decisions both professionally and personally, you should obtain independent professional counsel. It’s never too early or too late to begin thinking about your financial future.
Keeping Track Of Business Expenses
Two items can help you maintain track of your business income and expenses quickly and easily:
- Dedicated business accounts are used to pay for 100% of your business expenses. One of the worst administrative blunders you can make is combining personal and corporate transaction accounts.
- Link your business accounts to bookkeeping software.
Anything more complicated would be over-complicating things.
If you can do this, the software will capture all of your income and expenses. Much of this can be automated if properly set up.
All you have to do now is make sure you use your business card for business transactions and your personal card for personal purchases once you’ve set it up.
You have “live” accounts, which is useful when you require interim financial statements for loan applications or re-finances, in addition to making BAS and tax time considerably easier.
Keep your receipts in the unlikely event that you are audited. To figure out your tax and BAS figures, though, you don’t need to sift through stacks of receipts.
Contributing to super is a great method to reduce your tax bill.
You have the option of contributing nothing to super or $25,000 every year. More super is beneficial to taxes but detrimental to cash flow, and vice versa.
Plus, starting in 2019-20, if you didn’t use the whole $25,000 quota last year, you’ll be able to add even more. More information is available on the ATO website.
You can only carry forwards contributions if your total superannuation balance is less than $500,000.
Assume you contributed $10,000 of the $25,000 limit in 2018-19. This leaves you with $15,000 in your account. For 2019-20, your super contribution ceiling is $40,000 ($15k plus $25k).
You can take advantage of this by ensuring that you use the available contributions in the year when they are most useful. There isn’t enough room for specific instances here; just know that the new law provides you with options, and that we can assist you in selecting the best one.
Cut Your Mortgage Interest In Half
This can be accomplished by debt recycling or maximising good debt. Tax-deductible debt is the best kind of debt. Assume you earn $180,000k or more and pay a 47 percent tax rate. The deductible interest is subject to a 47 percent tax credit.
After tax, a deductible loan with a 3.5 percent interest rate is only 1.86 percent.
Your mortgage is not tax deductible. The interest on a company loan is tax deductible. Turning non-deductible debt into tax-deductible debt is the key to debt recycling. This is accomplished by:
dividing your financing into two parts: one for company and the other for personal purposes
Rather than paying your bills out of your fee income, use the loan and a company credit card.
Your entire mortgage could be tax-deductible over time, saving you thousands of dollars.
Lodge Your BAS In Two Minutes
You must pay both GST and income tax each quarter as a GST-registered sole trader. You don’t have to go to the work of calculating all of your income and expenses every quarter, though.
You can modify your BAS method in the first quarter of each financial year (July-September quarter).
Paying your BAS (GST and PAYG) in instalments is one alternative.
The quickest approach to cope with your quarterly commitments is to pay in instalments. All you have to do is:
- Log in to MyGov
- Click on your BAS
- Press “accept” and “lodge”
- Schedule a BPay to pay the amount owing on the due date
The disadvantage of this system is that the instalments are calculated using last year’s statistics, so you may pay too much or too little GST and tax, which you can adjust for at the end of the year. However, it is a significant time saver.
Another option for submitting your BAS quickly is to have us do it for you. We’ll need you to explain a few of the transactions to us, but this shouldn’t take long.
In any case, spending more than 15 minutes per quarter on tax administration is a waste of time.
Collecting Credit Card Points From The ATO
I’ve saved this for last because it’s only a modest benefit.
The ATO’s credit card surcharge for tax payments was 1.45 percent for American Express payments, 0.70 percent for Mastercard credit payments, and 0.78 percent for Visa credit payments at the time of writing (February 2020).
You can view the current rates at: https://www.governmenteasypay.gov.au/payato
In comparison to most suppliers, this is a minimal surcharge. However, there may be a difference between the value of your points and the card surcharge on certain cards (typically platinum cards). That is, the value of the points you will earn outweighs the cost of the premium.
A barrister’s BAS payment is generally in the tens of thousands of dollars per quarter. However, if there is a difference between the points earned and the premium paid, the rewards can pile up.
It can be difficult to calculate the cash value of the points you receive each $1, and it may be more hassle than it’s worth. Furthermore, certain cards do not award points for all purchases, and tax may be one of them.
Remember what a financial adviser said: “I’ve met a number of millionaires, but none of them has ever told me, ‘I made my money in bonus points.'”
Accounting for Barristers
Working as a barrister or solicitor in a public practise firm is difficult. You may also need to deal with troubled clients who are involved in disputes, mediation, litigation, or family law concerns, in addition to being up to date on legislative changes and case law.
Furthermore, the increasing trend of outsourcing the legal process, the pressure on billable hours, and the shortage of legal experts in rural, regional, and remote areas of Australia make running a law firm even more difficult.
We understand the challenges you’re facing as accountants. Deadlines, financially challenged clients, debtors, and administration are all common occurrences in the professional services industry. We cater to the needs of entire families and, in some cases, generations of families. We both rely on referrals to expand, follow a stringent code of ethics, and are threatened by globalisation and a lack of succession planning.
Marketing Your Legal Practice
We work in a crowded and competitive industry as accountants. We understand that your marketing can make or break your business, and while we have a small firm attitude, we have big firm capabilities. Our marketing experience is one characteristic that sets us apart from other Brisbane accounting firms.
To build their firm, most attorneys and barristers rely on their reputation and referrals. While these elements are still crucial in the digital age, you must change your marketing focus to the internet. Local searches such as’solicitor Moonee Ponds’ are increasingly bringing traffic to your website, which is typically the first point of contact with a possible new customer.
However, as you may be aware, you only have one chance to make a good first impression in business, and your website serves as your ‘online shopfront’ and silent salesperson, working around the clock to market your company.
We’ve worked with dozens of clients over the last few years to help them construct high-quality, low-cost lead generating websites that are mobile-friendly. We can assist you with the planning and development of your website, as well as its optimisation for Google and other search engines. We can also assist you with content creation, including video production and digital publication. Consider the case where your website lacks elements like as lead magnets, calls to action, or landing pages.
With that case, we’ll assist you in creating them, as well as expose you to traffic-driving techniques such as re-marketing and search engine optimisation.
Your brand should resonate with your target market, and we can help you with the creation of your company name, logo, and slogan, as well as your corporate brochure, as well as writing blogs and newsletters, and using the power of social media to gain more referrals. Your business will most likely not realise its full profit potential if you don’t use some of these marketing methods.