Practising attorneys need to take note of some important changes to the rules that govern how they manage their trust accounts.
These changes will come into effect as of November 1, 2018.
Failing to make certain key changes could impact attorneys negatively if they’re audited. If you’re an advocate, you will now, for the first time, be required to have an audit performed on these accounts.
Let’s run through some of the finer details before we hit you with the biggest change:
- Sole traders and partnerships are now required to prepare their business financial statements in terms of International Financial Reporting Standards for Small and Medium-sized entities (IFRS for SMEs) or full IFRS. This has always been the case for incorporated companies but might be quite a change for sole traders and partnerships.
- Accounting records must be updated on a monthly basis by the end of the following month. Previously the requirement was quarterly. This means that interest, bank charges and disbursements must be captured for each trust creditor monthly and not only on completion of the trust matter. The new rules also require accounting records to be maintained for the estate of deceased or insolvent persons.
- Attorneys should contact their bank to ensure that they update the designations to reflect the new rule number i.e. main trust bank account – Sec 86(2), trust savings account -Sec 86(3) and trust investment accounts – Sec 86(4).
- It’s important to ensure that you have written instructions from your client for specific investments in Section 86(4) bank accounts and no commission/admin fees may be paid out of these bank accounts unless the client is notified in writing. As from the March, 1, 2019, 5% of the interest earned will automatically be swept by the bank on these accounts on a monthly basis to the Legal Practitioners Fidelity Fund.
- With regards to suspense account items or where the identity of previously unknown money is discovered, it must first be journaled into a named trust creditor account and then dealt with from there – this helps to provide a clear audit trail. Any unknown, unidentified or unclaimed funds which are held for a year must be paid over to the Fidelity Fund by the end of the second financial year i.e. the first payments will be required to be paid before February, 28, 2020 for February year ends.
OK, that’s out of the way.
Most importantly, you need to note that once a legal matter has been finalised, the attorney must take his fees and transfer them from the trust account to the business account.
Getting busted for tax evasion is a bad look, especially for a practitioner of the law.
These are just a few of the new rules – rules which will be a lot easier to navigate if you focus on the lawyering and leave the tax stuff to the professionals.
Galbraith | Rushby offer professional tax compliance and advisory services to individuals and businesses. These services include:
- Auditing
- Tax Advisory and Compliance
- Accounting and Bookkeeping
- Secretarial
- Payroll
They’re also well-versed in the tax laws that govern attorneys and advocates.
In other words, they’ll take care of everything, and guide you, step by step, through any changes to the rules, while you focus on growing your practise or firm.
Sorted.
