Bermuda’s lawyers who have failed to keep up with their payroll tax, may soon find themselves summoned to Magistrates’ – maybe even a special court to deal with their mounting debt.

In a letter dated August 10, 2022, obtained by Bermuda Real, Tax Commissioner Derek Rawlins, CPA, said the noticeable “increase in the number of Bar Association members and law firms who have significant payroll tax arrears totaling $2.936 million dollars”.

The arrears includes “approximately 60 lawyers” and visiting QC’s”, who have been made aware of their tax arrears through the Tax Commissioner’s Debt Management Section.

“Some have even established payment plans,” but a clear warning was sent to those members who have not.

According to the letter, the Tax Commissioner’s data provides the following insights:

  • 72% (59 out of 82) of registered Taxpayers in the Legal Services sector have Outstanding Debt.
  • 8 (14%_ – Had set-up Payment Plans (Past or Present)
  • Of the 14% – 4 (7%) – Taxpayers had active had Payment Plans that were expired

“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,” Mr Rawlins said.

“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 (OTC) to settle their accounts.”

But while the “plan is to institute proceedings in early course,” he said: “The Court has agreed to allow a ‘special tax court’ or timeframe for OTC debt recovery matters.

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

“Please be advised that if your members fail to pay these arrears, or we are unsuccessful in securing payment through the Court process. we will have no recourse other than to make individual professional conduct complaints relating to financial obligations, in accordance with the ‘Barristers Code of Professional Conduct 1981’ Rules.”

The letter also stated that “recognizing that changes and improvements are being made to Bermuda’s tax regime” paying payroll tax must be made “in full and in a timely manner”.

The Tax Commissioner also issued the following reminder on the payment of payroll tax:

  1. It is a criminal offence to collect payroll tax from an employee and not submit that payment to the OTC
  2. Self-employed counsel, QC’s and law firms must close out their payroll tax account when closing the business, otherwise payroll tax will continue to be assessed
  3. 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
  4. 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
  5. 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.

Bermuda Real asked how so many law firms, lawyers, particularly self-employed lawyers found themselves so far in arrears?

One lawyer, speaking on the condition of anonymity, said the bottom line comes down to Bermuda’s still ailing economy.

“It means that the cost of running a law firm is as difficult as running a home budget.

“You pay the necessities, then hope and pray your clients stay current. Of course they can’t, but your recurring debt i.e. rent, salaries, keep coming.

“If you cut staff then they can’t pay their lawyer or whoever, so the domino effect is in play.

“That is why the Bar rules stipulate that you can’t have debt you can’t manage because you could find yourself being a defendant like your client, which embarrassed the profession,” our source added.

“But with the economy in the state it is in, that result cannot be avoided even by lawyers.

“So just like goods coming across the docks is an indication of the state of the economy, this legal debt to government is equally so.

“All the claims by government of recovery is just that a claim of no substance. But, what happens when those revenues affect governments ability to pay their own staff?

“And on and on it goes – it is basic economics 101.”

“So just like goods coming across the docks is an indication of the state of the economy, this legal debt to government is equally so.

“All the claims by government of recovery is just that a claim of no substance.

“But, what happens when those revenues affect governments ability to pay their own staff?

“And on and on it goes – it is basic economics 101.”