Swear fees

Teresa asked a question about swear fees received by solicitors in her query [1] of 7 November 2007. She wanted to know where such fees should be included in the self assessment tax return. Were the fees 'employment income' or 'any other income'?

Advice was also welcomed on what sort of records should be kept by the solicitor to record the fees. The fees often amount to only £50 to £100 a year per solicitor, and are usually paid in cash.

There is more to this query than meets the eye, and one can envisage HMRC Inspectors 'licking their lips'. Yes, the amounts are small, but aggregated over six years or even more could produce a reasonable amount of tax, interest and penalties for HMRC.

This is just the type of situation that HMRC like to target. Other similar situations involve, as mentioned by Euan McLennan, cremation fees received by doctors (colloquially known as 'ash cash' as James B mentions) and amounts received by notaries public. Taking the principle even further ministers of religion who conduct weddings and funerals, church organists and graveyard diggers are among those who need to record cash fees received carefully.

As Geoffrey Wolf observed, the fees received are a profit to be declared. In the case of an employed solicitor, if they are permitted to keep the cash, then Geoffrey suggests that the amounts should be declared as 'other income' with an explanation in the White Space of the self assessment return. Geoffrey recommended that a diary note is made at the time that will form part of the tax return preparation.

For self-employed solicitors the position is much more straightforward. The swear fees are the practice fees of the individual or partnership, and should preferably be paid into the practice bank account. Otherwise they should be recorded carefully as petty cash income. Whatever system is adopted, they must be recorded in the practice accounts.

All of this may seem 'nit picking' in view of the amounts involved. However in a large professional partnership swear fees of several hundred pounds or more could be received in a tax year. And, of course, HMRC are always looking for fresh streams of income without raising tax rates. Compliance and investigation is the favoured method.

Newth Talks Tax Archive [2]