Navigating accounting as a newly appointed barrister can feel overwhelming. As you step into your new role, you’ll find that managing your finances effectively is crucial for your success, both in the courtroom and in running your practice.
This guide will walk you through key accounting tips and best practices tailored specifically for barristers in Australia, helping you stay on top of your finances and avoid common pitfalls.
Let’s get straight to the point
New barristers must manage their finances effectively as sole traders. Key tips include registering for GST, using cash-based accounting to simplify BAS reporting, and planning for your first tax bill.Â
Claim all eligible business expenses, such as home office costs and professional attire, to reduce taxable income. Utilising accounting software like Xero can streamline financial management.Â
Consider contributing to superannuation for tax benefits and protect your income with insurance. Hiring an accountant can ensure compliance and maximise deductions. Keep accurate records to simplify tax filing and avoid audits.
Understand Your Role as a Sole Trader
As a newly appointed barrister, you will likely be a sole trader. This means you are responsible for managing your business accounts, paying taxes, and handling all other financial obligations.
Register for an Australian Business Number (ABN) and manage your income, expenses, and taxes.
Key Takeaway: Set up a separate bank account for your business transactions to avoid confusion between personal and business expenses.
Register for GST and Use Cash-Based Accounting
One of the first steps you’ll need to take is registering for Goods and Services Tax (GST). As a barrister, you can claim input tax credits for GST paid on business-related expenses.
A cash-based accounting system is essential, as it is a simpler method for reporting your Business Activity Statement (BAS).
Benefits of Cash-Based Accounting
- You only report income once received rather than when it’s invoiced.
- You record expenses when they’re paid, not when they’re incurred.
This approach can help you maintain better cash flow management and reduce the complexity of your tax reporting.
Important Tip: File your BAS quarterly to avoid penalties from the Australian Taxation Office (ATO).
Plan for Your First Tax Bill
As a newly appointed barrister, planning for your first major tax bill is crucial. Unlike employees, who have taxes withheld from their pay, sole traders are responsible for reporting their income and paying taxes at the end of the financial year.
Your first tax bill could be substantial, as it will cover all your annual taxable income.
Key Considerations
- Estimate your annual income and set aside some of your earnings to cover your tax liability.
- Consider opening a separate savings account to allocate funds for your tax bill.
After your first year, you’ll likely be placed on a PAYG (Pay-As-You-Go) instalment system, where you will make regular tax payments, easing the burden of a large annual tax bill.
Claim All Business-Related Expenses
To minimise your taxable income, claim all allowable business expenses. Some common expenses for barristers include:
- Mobile phone and internet costs used for work.
- Home office expenses if you work from home.
- Professional attire, such as wigs, robes, and other specific clothing.
- Subscriptions to legal journals and membership fees for professional bodies.
- Professional indemnity insurance and income protection insurance.
Pro Tip: Keep detailed records of all your expenses, including receipts and invoices, as they may be required if the ATO ever audits you.
Use Accounting Software to Streamline Your Finances
Managing the financial aspects of your practice manually can be time-consuming and error-prone. You can automate many of your day-to-day financial tasks using accounting software like Xero.
Benefits of Using Accounting Software
- Track your income and expenses automatically.
- Generate real-time financial reports.
- Simplify your BAS and tax return preparations.
- Stay organised with invoicing and billing.
Pro Tip: Link your business bank account directly to the software for seamless tracking of transactions.
Superannuation Contributions
As a sole trader, you’re responsible for making your superannuation contributions. Unlike when you were employed, your super is not automatically deducted, so you need to decide how much to contribute each year.
Tax Advantages of Super Contributions
- Contributions are taxed at a concessional rate of 15%, lower than most marginal tax rates.
- You can claim tax deductions on superannuation contributions up to the concessional cap ($25,000 per year).
Speak with a financial adviser to determine the most tax-effective strategy for your superannuation and retirement planning.
Hire a Professional Accountant and Tax Agent
One of the best investments you can make as a newly appointed barrister is hiring an experienced accountant and tax agent. They can help ensure you comply with ATO regulations, claim all eligible deductions, and avoid costly mistakes.
Key Benefits of Hiring an Accountant
- Save time by delegating complex tax calculations and BAS filings.
- Maximise your deductions and reduce your overall tax liability.
- Extend your filing deadlines for tax returns and BAS submissions.
Additionally, they can assist in setting up efficient record-keeping systems to ensure smooth financial management.
Protect Your Income with Insurance
Along with professional indemnity insurance, consider purchasing income protection insurance.
This type of insurance will cover your income if you cannot work due to illness or injury. It’s a crucial safety net, especially for sole traders like barristers who rely solely on their ability to work for their income.
Pro Tip: Income protection insurance costs are tax-deductible, providing both peace of mind and financial benefits.
Keep Accurate and Organised Records
Maintaining meticulous financial records is vital for both tax reporting and running a successful practice. Use digital tools to store and organise your receipts and invoices. Many accounting software programs allow you to upload and manage documents directly within the platform.
Important Tip: If you are subject to an audit, the ATO requires you to keep all records for at least five years.
Conclusion
Transitioning into the role of a barrister comes with many financial responsibilities. By implementing these accounting tips, you can better manage your finances, reduce tax liabilities, and focus on growing your practice.
From setting up a cash-based accounting system to making the most of your superannuation contributions, a well-organised financial strategy will serve you well in your new career.
Consider seeking professional help from an accountant or tax agent, and stay informed about the latest tax regulations to ensure your practice remains compliant and profitable.
Frequently Asked Questions
What Is The Best Way For Barristers To Handle GST?
- Register for GST through the ATO.
- Charge GST on services provided.
- Claim GST credits on expenses.
- Lodge BAS quarterly or annually.
Are Trust Accounts Mandatory For Barristers?
No, barristers generally do not hold client money and, therefore, do not require trust accounts. Payments are usually made directly to them for services rendered.
What Are Chambers-Related Financial Obligations?
- Chambers rent: This is a significant recurring expense.
- Shared services fees: These might cover administrative support, library access, and other shared resources.
Do Barristers Need Professional Indemnity Insurance?
Yes, it is mandatory to have professional indemnity insurance to practice law in Australia. Check with your state or territory bar association for details.
When Should Barristers Hire An Accountant?
Hiring an accountant is advisable if:
- You are unsure about your tax obligations.
- You want to focus more on your practice and less on bookkeeping.
- Your financial affairs become complex.
