John Higgs of Company Councel offers guidance to interim managers needing         in-house legal skills for their SME clients

In the current market, the interim management business is booming.

There is plenty of support for interim Managing Directors and Finance Directors available from HR, IT and other specialist professional contractors, but who is offering a vital in-house legal service?

In the large corporate world these days, in-house lawyers are key members of the management stucture.  They help to prepare for and manage and implement change from the inside.  External law firms are brought in to do only what they do best.

However, interim managers will be able to draw on the skills of interim lawyers whose experience has been gained in large companies.  Medium-sized businesses will not usually have a lawyer on the staff, but the need can be much the same, if not greater.  If the owners and managers of the smaller businesses have not worked with in-house lawyers, then they won't be aware of what they are missing.

The growth among flexible lawyers is relatively recent and as yet, there are not many available on an affordable basis for SME businesses.

What do interim managers do when they need that kind of help?  Do they struggle without guidance, or do they use law firms that may provide an excellent (and usually expensive) service, or might they just turn to an interim 'in-house lawyer'.

I have been working as an interim manager with SME's through my company, Company Counsel since 2000 and I have achieved cosiderable success in the SME marketplace. 

My associate, Edward Simpson, has established his own business, Faraday's Law, and between uis we have developed a network of in-house lawyers through Mature Lawyers.  We both started in large City law firms and can now offer considerable flexible skills and expertise to the SME.

John Higgs

Company Counsel Limited
01622 859683
07979 756674
companycounsel@aol.com

Profile of John Higgs: www.ibd-uk.com/members/higgs-john.htm

Edward Simpson

Faradays Law
020 8432 9473
07747 846960
ed@faradayslaw.co.uk

www.faradayslaw.co.uk
www.maturelawyers.com

Extract from a slightly irreverent review of an Inland Revenue inspection of a Competex client's affairs...

It started innocently. I was away at a client and rang my home office answerphone for messages.

A pleasant voice asked me to call the Inland Revenue, no reason, no explanation. Ho hum. The following morning I rang the lady. We fenced politely - well, I fenced and she was polite. She wanted to review the payroll records of my personal service company, so I referred her to my accountants, who administer my payroll. Yes, I had behaved like Pontius Pilate but at least that was the end of it.

Up to a point, Lord Copper. The same day, my accountants rang me. They had acted stoutly on my behalf, had resolutely defended my interests and had offered an examination of the payroll records; but the lady had mentioned IR35 and they felt, totally reasonably, that I was more able to answer any detailed questions.

So, faced with this prospective ordeal, I acted in total accord with the well-established practice of the interim executive profession - I panicked and sweated. Just to get the adrenalin level higher, you understand.

I rang her again. Yes, she wanted to submit me to the rack of a general tax review, with, as a free bonus, the heated irons of an IR35 inquisition. I was my normal strong and confident self, and whispered, in a voice that even I could hardly hear, "Is there any particular reason for this request?" No, I was assured, the choice of me as putative victim was haphazard and mere coincidence. She was sincere and I believed her.

A couple of days later, I was back to normal. I had taken off my paranoia and put it into a box. On the third day, I took it out of the box and donned it again - I had received a letter. The reasons for the visit were in major headings like a restaurant menu - 'Review of Employers Records', 'Purpose of Meeting', 'Who will I need to see?', 'What Records will I need to look at', with explanatory notes. Those reasons were particularly clear as these main headings were in Font size 16 - and Bold!

Sadly, I am not Italian by origin; I therefore do not have the third set of books to be shown to the taxman.

Equally sadly, my wife and I own the company equally, so the second set, used for shareholders, also doesn't exist. Hell, then, it'll have to be the real ones that she looks at.

The chosen day arrived. I donned my metaphorical tin hat and went to meet my inquisitor visitor. The mental image of a modern-day Boadicea was somewhat dented by the pleasant and attractive lady who greeted me.

Foreplay lasted a few minutes (no change there, then). She would be reviewing about half a dozen personal service companies in the north-west London/Home Counties area. Blithely assuming a confident air, I gave her all my records and left her to it.

Now, it so happens that, having been for many years the CFO of a multi-national with a vigorous attitude to documentation, particularly with respect to personal expenditure claims, I keep extremely diligent records and knew that paper to satisfy the most ardent auditor was there. I haven't yet got to the point of sending back unpaid my own expenses with a curt note because a back-up receipt isn't there, but I've come close. One day it'll happen and I'll have a blazing row with myself and walk out.

Re IR35, it also so happens that I had taken it seriously from day one. My accountants - Lawd bless 'em - had explained it in words that I could understand and had even produced a monthly worksheet to show the cumulative position throughout the tax year (remember, gentle reader, that it is over the whole tax year that one is assessed under 'intermediaries legislation').

Fees can be subject to opinion and I felt confident that I had been sufficiently honest (i.e. cowardly) to account for 'salary' as subject to IR35. Expenses have less potential for disagreement - I had very carefully created a sub-split in my monthly expenses for those items that related to IR35 clients. These, of course, are not merely allowable against your fee income but also contribute towards the 5% general offset that you can apply.

It seems odd to me - the greater the amount you can reasonably charge your IR35 clients, the more you can recover the non-IR35 costs of running the company. Conversely, it is perversely stupid that, when you are not working (yes, it even happens to me), you run the risk of never being able to recover expenses unless you achieve non-IR35 assignments. When not on assignment, there are still ongoing costs - accountancy fees, delivery of the Financial Times, internet and 'phone charges, travel to contacts for potential assignments, bottles of 1961 claret for those same contacts, water for myself, etc.

After three and a half weeks - well, it was really about two hours - we held a closing meeting. She discussed the assignments for which she had seen invoices, how were they sourced, why did I sometimes invoice direct and on other occasions via a third party, how long, etc.

Some specifics came out at this closing meeting:

• Why were my expense claims to clients often less than I charged my company? (A variety of reasons, the most common being that I invariably charge my clients for mileage at his standard rate for my size of car - this is good PR, and insisting on charging the higher Revenue approved rate could cause resentment inside the client).
• The direct debit for my mobile phone is charged to the company bank account, but did I know that, as the contract was with me as an individual, I should account for this as a benefit-in-kind unless I re-imbursed all personal calls? No, I didn't - but I've now changed the contract.
• Disallowance of charges for a percentage of home expenses. I'm still unhappy about this one. I charge a standard proportion - carefully based on a twenty-second of the costs, being one-half of my eleven rooms excluding loos, landings etc - and the revenue wants to disallow this as I perform my substantive duties at the offices of my clients. I shall simmer on this one and take counsel from my accountants.
• As a generalisation, it was a useful 'kick the tyres' exercise and was carried out politely by the individual concerned. She was even helpful in offering me some guidance to strengthen my position (i.e. the mobile 'phone contract). She knew her stuff and, by the time she had left, I knew a bit more.