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Law firms urged to pay almost $3m in unpaid taxes

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Tax time: the Tax Commissioner is asking lawyers to tackle payroll tax arrears. (File photograph)

An appeal was made by the Tax Commissioner for lawyers and legal firms to tackle payroll tax arrears that totalled more than $2.9 million.

Derek Rawlins asked the Bermuda Bar Association to help by “encouraging” its members to settle up to avoid court action.

As reported earlier on Bermuda Real, in a letter dated August 10, 2022, the Tax Commissioner said that 59 out of 82 — or 72 per cent of — registered taxpayers in the legal services sector had outstanding debt.

Mr Rawlins wrote to the Bermuda Bar Association: “Recognising that changes and improvements are being made to Bermuda’s tax regime, we write to request your assistance in encouraging your members to fulfil their existing obligations to pay all payroll tax, land tax and corporate services tax, in full and in a timely manner.

Request: Derek Rawlins , the Tax Commissioner (Photograph from LinkedIn)

“In particular, we have noticed an increase in the number of Bar Association members (approx 60 lawyers and law firms) who have significant payroll tax arrears totalling $2.936 million.

“Most members (including visiting QCs who are included in our ‘legal services’ list) have been made aware of their tax arrears through our debt management section.

“Some have even established payment plans.”

In the letter — a copy of which has been seen by The Royal Gazette — the Tax Commissioner said that four of the 59 legal services taxpayers with outstanding debt had active payment plans and the same number had set up plans that were expired.

Mr Rawlins added: “For many, our next step will be to issue an ordinary summons in the Magistrates’ Court, which will not reflect well on them or the legal profession.

“We would very much like to avoid such action and we invite any counsel or law firm having arrears and/or having received a call or a ‘Letter Before Action’ in recent months to reach out to the Office of the Tax Commissioner to settle their accounts.

“Our plan is to institute proceedings in early course as the court has agreed to allow a special ‘tax court’ or time frame for OTC debt recovery matters.

“If anyone is unsure of their current tax liability, they too should reach out to us for guidance.”

He said that if Bar Association members failed to pay the arrears, or payments could not be secured through the court process, the office would have “no recourse other than to make individual professional conduct complaints relating to financial obligations”.

Mr Rawlins issued a reminder that it is an offence to collect payroll tax from an employee and not submit it to the Office of the Tax Commissioner.

He added: “Self-employed counsel, QCs and law firms must close out their payroll tax account when closing the business, otherwise payroll tax will continue to be assessed.

“Our records indicate that many self-employed counsel are not filing payroll tax returns at all and are being assessed at a much higher rate, on an annual basis.

“Partnerships are not filing payroll tax returns with one partner blaming the other partner for non-payment or one partner registers for themselves and not for the partnership.

“There may be opportunities to have certain ‘assessed’ tax amounts reversed, where no ‘payroll tax return’ was received during a particular quarter, and/or some penalties can be remitted.”

The Gazette has sent questions to the Tax Commissioner about any responses or action since the letter. The Bermuda Bar Association has also been contacted for comment.

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Published September 13, 2022 at 8:00 am (Updated September 13, 2022 at 8:00 am)

Law firms urged to pay almost $3m in unpaid taxes

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