• barrister only entities (BOEs) – an entity entirely owned and managed by barristers;
  • legal disciplinary practices (LDPs) – all of whose owners and managers are authorised persons; and
  • alternative business structures (ABSs) – which must have at least one authorised person as head of legal practice (HoLP) and at least one non-lawyer manager. The majority of the owner/managers must be barristers or other advocates with higher rights of audience.

At the moment the Solicitors Regulation Authority (SRA) will regulate LDPs and ABSs. In the case of LDPs there must be at least one solicitor involved but in the case of an ABS there has to be at least one non-lawyer involved. However, the SRA will not regulate a BOE.

Under the proposed BSB structures it is believed that a barrister could practise through a limited company and up to 25% of the share capital could be held by a non-lawyer. A typical scenario might be a barrister owning 75% of the shares and the barrister’s spouse 25%. This arrangement, under current tax legislation, would result in savings in both income tax and National Insurance contributions.

Hefty savings

The tables (opposite and previous page) illustrate the tax savings for a range of profits with a barrister owning 100% and 75% of the share capital. It also includes the provision of a salary set at a level just below that which would create a National Insurance liability but at a level that gives credit, so that state benefits such as the basic state pension are preserved. Of course, the salary shown as payable to the spouse has to be justifiable and commensurate with the duties performed on the company’s business.

It should be noted that the figures in the tables assume that neither the barrister nor the spouse have any income from other sources.  On higher incomes there are considerable savings in income tax and National Insurance to be made and even at the lower income levels the savings are not insubstantial when considered as a percentage of the taxable income.

Possible drawbacks

Of course, running a limited company has a number of other consequences that need to be considered:
Company accounts have to be prepared on an annual basis which comply with the Companies Act. This requires a much higher degree of recording of transactions since a balance sheet as well as a profit and loss account must form part of the financial statements.  A company is a separate legal entity to the owners/managers and thus the company assets must be respected – the company’s bank account cannot be used as a ready source of funds.

Monies can only be taken out of the company by way of salary or dividend.

There are additional compliance issues:



  • PAYE regulations must be followed;
  • corporation tax forms must be filed and corporation tax payments made;
  • filing of accounts with Companies House must be done within set time scales;
  • the company is likely to be required to be registered for VAT; the consequence of the above is the likelihood of much higher professional costs for assisting with meeting the additional compliance requirements.

Complications arise if there are any “associated” companies. The rate of corporation tax may be affected if two or more companies are associated with each other. A company can be associated with another if a husband and wife both have interests in more than one company. This is a complex area and so would require specialist advice.

In addition to the company compliance issues, the barrister and spouse will have to file personal self-assessment tax returns declaring income taken from the company. So, although the personal tax return may well be simpler in terms of self-employment income there will remain the requirement to file a personal self-assessment return.

Despite the disadvantages there are quite substantial savings to be made and so the incorporation route is something that should be given serious consideration. There is also the advantage of limited liability that operating through a limited company offers.


The use of limited companies in the manner described above is legitimate tax planning under current legislation. However, the government is currently considering the introduction of a “general anti-abuse rule” that would be targeted at artificial and abusive tax avoidance schemes. At the moment it is not known whether the use of limited companies would be considered an “abusive” tax avoidance scheme.

The above information and illustrations are based on current legislation and tax rates for the 2012/13 tax year. Personal circumstances and changes to the rates of tax in the future will have a bearing on the benefits to be achieved and so it is imperative that advice is sought before taking any action.

Nick Avis is senior partner in Place Campbell Chartered Accountants