SUMMER could be sentencing time for more than 100 law firms in Yorkshire which are at risk of failure in the next 12 months, it is claimed..
Partners in law firms are having to make their second tax payment for the year – putting them under greater financial pressure.
Research by insolvency trade body R3 – using data from Bureau van Dijk’s ‘Fame’ database – suggests that more than 2,000 UK law firms will be at risk of failure in the next 12 months.
Some 110 of them will be in Yorkshire, according to the data.
The national figure equates to 29.1% of firms in the UK and Ireland, higher than the cross sector average of 21.8%.
Unlike many businesses, limited liability partnerships, partnerships and sole practitioners are not directly assessed for tax on the business’ profits, but will commonly arrange to settle individual partners’ liabilities.
Ideally, a tax reserve fund will have been maintained for this purpose, but this is not always the case.
Chris Wood, Yorkshire R3 committee member and partner at Clough Corporate Solutions in Cleckheaton, said: “This requires very careful planning and steps should be taken to apply for a reduction of payments on account if earnings are expected to reduce over the coming year.
“This time of year is known to put real cash flow pressure on firms and more often than not we see a spike in banks being asked to fund taxation liabilities. The legal services sector is a very crowded market and so firms that are not competitive are unlikely to thrive.”