It’s that time again. Your pre-weekend compliance appetiser.
The main news of course is the SRA’s continued plans to fundamentally change the solicitor’s profession under its “Looking to the Future” programme.
If approved by the LSB, a significant proportion of firms will be subject to “price transparency” by the end of the year.
And by next Easter-ish we will have the new Handbook (inc. Accounts Rules), and a new breed of freelance solicitor. We may even have new PI insurance rules, if the SRA continues with its current plans.
VAT on disbursements is perhaps not the most headline-grabbing topic, but it is essential to get right to avoid the wrath of HMRC. The trouble is, nobody is quite sure what “getting it right” means, particularly in relation to search fees. The Law Society has recently issued “interim guidance” on the issue. Presumably a challenge is on the cards?
Have a fabulous weekend,
Jon and the team
VAT on conveyancing searches – where are we now?
In the wake of the First Tier Tax Tribunal decision in Brabners LLP v HMRC, the Law Society has taken the unusual step of issuing temporary guidance for law firms. Brabners really put the cat amongst the pigeons at the end of last year. The tribunal considered electronic searches to be part and parcel of the legal service, not disbursements, and therefore subject to VAT. The firm was left with a historic bill of almost £70,000.
Most conveyancers would disagree with the tribunal, particularly given that there is a different tax treatment for postal searches. In its guidance note, the Law Society says it has been working with HMRC on clarifying the situation, and:
Long story short: HMRC isn’t budging on this issue, so add VAT to search fees until advised otherwise.
Richard Lane of Legal Finance Professionals is the man to speak to if you have any concerns about your potential exposure to HMRC. As an accountant, trainer and ex-regulator, he has the unique blend of skills to help.
Read Richard’s recent article on the Brabners case here
The Law Society is also encouraging firms approached by HMRC in relation to these issues to contact them on Disbursements@lawsociety.org.uk
SRA transparency shake-up
Law firms are to be forced to become more cost-transparent as part of the SRA’s “Better information, more choice reforms”.
Following hot on the heels of the CLC’s similar plans for licensed conveyancers, the SRA simply needs to convince the Legal Services Board to rubber stamp the proposals.
Given the LSB’s position on price transparency and consumerism, this is likely to be a formality. We could therefore see new information requirements before the end of 2018.
Firms will have to publish the cost of the service provided on their website and clearly explain what it does and does not include. Practice areas affected are:
- Motoring offences
- Employment tribunals work
- Immigration (excluding asylum)
- Debt recovery (up to £100k), employment tribunals and licensing applications for business premises for small businesses
That list will surely grow over time.
Firms will also have to display a “regulated by” digital badge, which will identify what protections are afforded to clients by virtue of SRA regulation.
Thankfully the proposal for all first tier complaints to be published has gone (for now). The SRA recognised that it would be impossible to make a judgement about quality, based on complaints data without context.
There will, however, be more information about disciplinary action and regulatory breaches on the SRA’s website, and this data will no doubt be made available to comparison sites.
Why it matters
We knew it was coming. Like it or not, we will all have to make sure we comply with whatever rules are subsequently made. Some will no doubt play the game and do the bare minimum. Others will enthusiastically grasp this as a great opportunity to shout about their low prices.
The smart money has to be on communicating value beyond price, without falling into the trap of sounding like every other law firm. Or perhaps, communicating quality through premium pricing – using this as an opportunity to attract more of the clients you want.
Transparency and increased competition should be a good thing for clients, on paper. Whether it is a good, bad or neutral thing for the profession is yet to be seen. But frankly, that ship has sailed. Over the coming years, the transparency agenda is bound to creep into all areas of legal practice.
We must now focus on pricing strategy and what that says about our firms.
New SRA rulebook to be implemented in 2019
We now know that the SRA will push ahead with the rest of its Handbook reform.
The new Handbook, which is expected to be in place around April 2019, will not just be a re-write of the existing rules, although that is a big part of it. (You will recall that the Code of Conduct and Accounts Rules have been slashed down to a more manageable size).
Subject to LSB approval, the SRA confirmed we will also see the introduction of freelance solicitors and the ability for unregulated businesses to provide (non-reserved) legal work by solicitors. If the current PII consultation goes through, we may also see fundamental reductions in mandatory client protection.
Why it matters
Where to start?
All firms are going to have to put in place a comprehensive training programme to ensure staff are aware of the new Handbook changes.
More fundamentally, many firms will be thinking hard about their business models. Do we need to be regulated any more? Can we hive off certain departments into separate unregulated entities? Can sole practitioners ditch their licence and become freelancers?
Law firm insolvencies on the rise
Shocking statistics have emerged which suggest that the number of legal practices becoming insolvent is rising rapidly.
The figures from the Insolvency Service show that 20 firms were declared insolvent in the first quarter of 2018 compared to 9 in the same quarter last year.
The total number of insolvent firms recorded in each of the last two years reached 46. Based upon the early records of 2018 this would suggest that we are going to see a marked increase in the number of insolvencies if it follows the previous years trends.
Why it matters
This is an alarming trend which firms must keep an eye on. We should look to our regulators and representative bodies to look into what is driving insolvency, and whether it is symptomatic of wider financial difficulties in the profession.
Are we beginning to witness the cost of LASPO and other reforms?
CILEx closer to regulating ABSs
The Legal Service Board (LSB) has given its approval for CILEx to licence ABSs, meaning it is one step closer to joining the ranks of other five major regulators. It remains for the Lord Chancellor to give final approval.
It had previously been reported that the Lord Chancellor had raised concerns because CILEx did not require the HOLP (Head of Legal Practice) to be a manager of the ABS, and that it only required one lawyer to be in a management role.
The LSB clearly does not share those concerns. It referenced the SRA and CLC as other regulators who apply a similar model.
Why it matters
With CILEx on board as another ABS regulator, this opens the door for more legal professionals to have the same opportunities afforded their counterparts in other parts of the profession. It also expands the market and gives the public a greater choice within the expanding access to justice pool.
Of course, it also gives legal professionals wider scope to choose their regulator….
New and updated Law Society Practice Notes
- Christopher Mark Howdle – struck off and ordered to pay £27,000 costs. Found guilty of the improper use of client account by transferring £25,000 from client account to the incorrect bank account of another client. He was also found to have stated a lower purchase price in stamp duty land tax form.
- Safina Bibi Shah and Shamilla Hanif were both struck off the roll. Ms Shah was found to have acted with manifest incompetence, acted dishonestly and recklessly with regards to the manner in which she supervised and conducted noise induced hearing loss claims. Ms Hanif was found to have acted dishonestly and to have done so to protect the actions of the first respondent and herself.