Medico-legal fee recognition

Medico-legal fee recognition

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Consultant carries out medico-legal reports but contractually, payment is not receivable until the case is settled, sometimes two years later. Virtually all cases end up settling. No history of bad debts. The reports are complete at the date of the fee note. Naturally, the fees earned will be recognised in the accounts as income in the year the work was performed and invoiced. The client has asked me if there is any way of deferring the tax on the income. Any thoughts?
John R

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By martinfoley07
14th Sep 2005 17:36

conditionality?
Is it possible to issue the fee note confirming payment is conditional upon a settlement being reached? Unless it is legally impossible for a settlement NOT to be reached, this would enable the income not to be recognised until settlement under existing GAAP. Furtehrmore, it would meet the future requirements of UITF40 which is causing so much excitement in the land.

Of course, if doing this is potentially dangerous or commercially harmful, may not be worth doing.

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By User deleted
15th Sep 2005 11:35

Thanks Jason and Martin.
The contracts are not on a contingency basis and the client will therefore be entitled to payment whatever the outcome. As the contracts are all very short term as far as the amount of work involved is concerned (a few hours work at most to produce a report from an examination of notes and questionnaires), it is unlikely that there will be any work in progress at the year-end so the UITF 40 problem will not apply in this case.

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By AnonymousUser
09th Sep 2005 15:20

Medico-Legal Fees
John R

This is a question I have asked myself many times and also at varies courses I have attended. I also have consultants who undertake medico-legal work and the accounts are based on the value of the fee notes raised. As you point out this puts them at a distinctive disadvantage from a cash flow position as they pay 40% tax on the income, sometimes years before the money is received!!

I always thought that sole traders did not need to value their time so work in progress did not need to be valued! However, I was told by people wiser than me, that when the reports are completed they have a value and at this stage have to be brought into account.

Other comments would be appreciate. Can an individual delay raising the invoice if they choose, knowing this will not be paid for possibly 2 years?

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