Finance for Professional Firms

Yes. Lenders used to professional firms do not expect a consultancy to have recurring fees, and they read the business on its order book instead. They ask for the accounts and management figures, a list of live engagements with their value, stage and billing dates, the pipeline of proposals and the share of fees that come from repeat clients, and they look at how the firm is paid, whether on day rates, fixed fees or milestones. Professional Practice Loans, a specialist whole-of-market broker, presents a consultancy on those terms and approaches lenders whose criteria include project based professional income rather than those that only fund retainers.

• Concentration. A consultancy with one client providing a large share of fees is asked what happens when that engagement ends, so have the next phase or the replacement work ready to show.
• Utilisation. Lenders compare chargeable days with the headcount, because an under used team is the quickest way for a consultancy to lose money.
• Billing terms. Milestone billing on long programmes stretches the gap between work and cash, which is where working capital or WIP finance fits.
• Associates. A firm that relies on associates rather than employees is asked how quickly it can scale down, which lenders read as a strength if the contracts allow it.

See unsecured practice loans for borrowing assessed on fee income, or get instant quotes for the gap between engagements.

Yes, where the firm is a body of registered attorneys that carries out reserved legal activities. IPReg says it authorises two kinds of firm. A registered body is wholly owned and managed by patent attorneys, trade mark attorneys or other authorised persons such as solicitors or barristers, and a licensed body is an alternative business structure with at least one manager or owner who is not an authorised person, which includes European Patent Attorneys and European Trade Mark Attorneys. For the patent register at least one manager or partner must be a registered patent attorney, and for the trade mark register at least one must be a registered trade mark attorney. A licensed body must also have a Head of Legal Practice and a Head of Finance and Administration approved by IPReg before it starts trading.

• Reserved activities. IPReg says it is a criminal offence to provide reserved legal activities without authorisation, and the ones it can regulate are rights of audience, the conduct of litigation, reserved instrument activities and the administration of oaths.
• Establishment. A licensed body needs a practising address and a real and effective establishment in England or Wales, and a registered body the same in the UK.
• Lenders. Specialist professions lenders ask which regulator a firm answers to and look for its entry on the register, so settle the structure before applying for finance.

IPReg explains registered and licensed bodies. See new practice finance for how a new firm is assessed and PII premium finance for the first renewal, or get instant quotes.

Usually, for an individual partner. Section 398 of the Income Tax Act 2007 treats interest on a loan as eligible for relief where the loan is used to purchase a share in a partnership, to contribute money to the partnership by way of capital or premium that is used wholly for the purposes of its trade or profession, to advance money to the partnership that is so used, or to repay another loan of that kind. Section 399 adds the conditions. The individual must remain a member of the partnership from the time the loan is used until the interest is paid, other than as a limited partner or as a member of an investment LLP, and must not have recovered capital from the partnership. Professional Practice Loans, a specialist whole-of-market broker, arranges partner capital loans in the incoming partner's own name, which is the structure the relief is written around, and your accountant confirms how the claim goes on your tax return.

• Who borrows. The relief belongs to the individual, so a loan taken by the firm and lent on to the partner is a different arrangement with different tax treatment.
• Keeping the money in. Drawing capital back out of the firm after the loan is made can reduce or remove the relief, so plan drawings with the loan in mind.
• Limited companies. A director buying shares in a consultancy company looks to different rules, and lenders structure that borrowing differently too.

The wording is in section 398 of the Income Tax Act 2007. See partner buy-in finance for how the loan is structured, or get instant quotes.

Yes. Partners' tax funding pays each partner's Self Assessment liability on the due date and is repaid in monthly instalments, so the money does not have to be drawn from the firm in one lump in the months when fees are slowest. GOV.UK sets the payments on account at half of the previous year's bill each, due by midnight on 31 January and 31 July, with any balancing payment due the following 31 January. Payments on account are not required where last year's bill was under £1,000 or more than 80% of the tax was paid at source. Professional Practice Loans, a specialist whole-of-market broker, arranges tax funding for partnerships and LLPs, either as one facility for the firm or as separate loans for each partner.

• The firm's own bills. VAT and, for a company, corporation tax can be funded in the same way through tax and VAT funding.
• A strong year. A rise in profit raises both the balancing payment and the next payments on account, so the January bill after a good year is often the largest the partners have seen.
• Timing. Lenders can pay HMRC directly, so apply a few weeks before the deadline rather than after interest has started to run.

GOV.UK explains payments on account. See partners' tax funding, or get instant quotes for the next deadline.