Olswang

Some former Olswang partners are facing higher than expected tax bills for 2015-16, Legal Week has learned.

Several partners told Legal Week that they face a "significant" hike in their tax bill, with one saying the outstanding sum is double what they had put aside to cover the payment.

They suggested that the larger bill reflected expenses deemed disallowable by HM Revenue & Customs (HMRC).

Former partners said they were told about the bill on Thursday (26 January) last week, leaving very little time to arrange payment ahead of a deadline for paying the bill today.

"It has caused me a lot of grief over the weekend. It is grim," said one ex-partner. "We're hearing conflicting reasons for it. My deadline is the end of January. I have taken third-party advice to understand what is going on."

According to a tax partner at a firm unrelated to Olswang, a partner with Olswang's average earnings of £490,000 in 2015-16 would normally pay just over £200,000 in tax each year.

An Olswang spokeswoman said: "We imagine that some partners or former partners are being asked to pay a larger income tax bill than they were perhaps expecting, which is a matter for them and the Inland Revenue."

Tax partners said it is likely that current partners may also be affected, even if they have not yet received a letter confirming this.

"If it is a case of disallowable expenditure, that will hit all partners at that firm. It should be calculated evenly in proportion to their distributions and their locksteps," said one City tax partner.

A second ex-partner added: "It will affect everyone, whether partners know immediately or not. For us, it has been brought forward as we're no longer there. These are last-minute tax issues, quite significant disallowables."

The key dates for meeting tax bills in law firms are 31 January and 31 July.

It is not known exactly which expenditure has been disallowed but it could cover things like entertainment or travel expenses.

One City accountant said: "Invariably, some law firms have some expenditure [that] HMRC doesn't think should be deducted in calculating profits and therefore they add it back when calculating profits for that year."

One City tax partner commented: "If they are making an adjustment to the current year as the tax return is coming in, you might say it is a bit late in the day to get sprung with a surprise for the year just gone. The question is: where is this coming from? It could relate to items taken as deductions that shouldn't have been."

The accountant added: "The firm should have known what the disallowable expenditure was several months ago, unless they have been to-ing and fro-ing with HMRC. I don't infer anything untoward about this though – often, tax bills are not agreed until years after."

The news comes as Olswang gears up for a merger with CMS UK and Nabarrro due to go live 1 May. The partners voted in favour of the transformative merger in October last year.

Earlier this month, it emerged that all three firms have kicked off a redundancy consultation with all of their support staff, as well as those working for Integreon, which has provided UK support services for CMS since 2010.