A guest post by Kirsty Wright, equity partner at Buckinghamshire firm OWN Solicitors and adviser to the CILEx criminal practitioners specialist reference group. The Chartered Institute of Legal Executives [1] is a Legal Futures Associate
[2]Wright: Sustainability worries
Since the Covid-19 outbreak, the work of criminal defence firms has noticeably declined. The future of defence practitioners and the criminal justice system is in jeopardy. Criminal defence firms (particularly, small and medium-sized enterprises (SMEs)) are unlikely to survive after Covid-19 unless the government considers additional financial measures to those currently available.
Self-employment income support
Entitlement for this scheme is based on previous profits rather than individuals’ income (for example, drawings in partnerships). Eligibility is capped at £50,000, meaning that many SME equity partners do not qualify. Frequently, partners use former operating profits to support firm cash flow and, if this is so, they may have no personal living support now.
Deferring VAT and self-assessment payments
VAT deferment could provide interim financial relief, albeit short-lived. Currently, businesses remain liable to make payments later, together with any subsequent payments falling due.
Whilst individuals can delay July’s tax payment, self-employed partners must pay, in January 2021, this and their usual January tax liability. The latter includes an advance HMRC tax payment, which is calculated based on previous profits generated before the COVID-19 crisis.
HMRC ‘Time to pay’ scheme
Any repayment period will be insufficient, given the reduced fee income businesses are likely to recover (even after ‘normal’ business resumes).
For many defence firms, legally aided police station and magistrates’ court cases form the bulk of their work, which is paid for retrospectively by standard monthly payments (SMP) from the Legal Aid Agency (LAA). Firms receive the same sum every month, regardless of actual billing figures. Debt accrues to the LAA results if actual billing figures are lower than SMP. This debt will probably increase during the Covid-19 crisis, given the reduction in work.
Firms instead receiving variable monthly payments (VMP) – enabling remuneration in arrears for sums actually billed – will instantly experience lower monthly incomes.
Interim payments and hardship claims
Businesses can apply for interim payments from the LAA and make hardship claims during the COVID-19 emergency.
The threshold for claiming has reduced, and payments can be requested earlier than previously (and in wider circumstances). However, the opportunity for interim claims currently only exists for some Crown Court matters. [3]
Interim payments obtained now mean lower fees received later and, therefore, do not alleviate firm sustainability issues. Firms ineligible for hardship claims do not benefit.
Despite simplification of the claim submittal process, criminal legal aid providers retain the administrative burden and they must identify when to claim.
Business interruption loans
This scheme allows SMEs to apply for bank loans, an uninviting prospect to many criminal defence firms. It is doubtful many will be in a position to repay borrowings, even if there is interest relief or extended repayment timeframes.
Small business grants
Eligible firms can apply for funding of £10,000. As a grant, this is more appealing, but the sum available is probably too low to make a noticeable difference to those experiencing substantial income loss.
Job retention scheme
This scheme provides short-term financial assistance. This is attractive as it is less likely to leave firms in financial deficit. It also partially addresses the likelihood of future debt accrued as a result of Covid-19.
Firms employing duty solicitors can retain the slots of their furloughed workers on the duty rota. Whilst criminal defence work has reduced since the pandemic, police station and court work could increase as a result of the coronavirus legislation. This may force firms to bring back furloughed staff before they have been away long enough to qualify for the relief.
Firms that furlough staff remain initially liable for their employees’ wages. They may claim subsequent recoupment of up to £2,500 per furloughed worker. Financial pressures remain whilst businesses wait for reimbursement.
Statutory sick pay relief package
Practitioners remain under police pressure to attend live interviews, despite the Covid-19 interview protocol [4] encouraging remote dealings. There is often a requirement to attend magistrates’ courts. Whilst physical attendance is necessitated, lawyers remain at risk from the virus.
Lawyers absent due to sickness, self-isolation or care responsibilities will continue to financially impact criminal firms (statutory sick pay relief affords little comfort to those affected). Staff absence creates practical disturbance to business operations, and places partners under further pressure to conduct the work of affected staff in the interim.
So what can be done?
Having considered the shortfalls of existing financial support measures, what might be done to assist long-term sustainability? Some possibilities are:
- Remove the £50,000 cap on former operating profits enabling greater accessibility to the self-employed income support scheme;
- Determine eligibility for the income support scheme by income rather than by profits generated by self-employed individuals;
- Allow VAT exemption (thereby enabling businesses to utilise existing funds they normally expend on VAT payments); and
- Introduce a monthly grant for businesses payable at their usual SMP figure. If firms have previously received remuneration by VMP, they could be assigned an SMP grant. This could be calculated based upon the mean average of sums received.
Existing Covid-19 financial business support measures paint a worrying sustainability picture. Unless further incentives are introduced, even if criminal defence firms physically survive the crisis, they may be unable to recover economically from this public health emergency.