The four record books of the self-employed lawyer: income, expenses, investment goods and advances

Invoicing properly is only one part of a firm's tax management. The other is recording what is collected, what is spent and what is invested. For professionals taxed under direct estimation, the Tax Agency specifies that obligation in four record books.

The four books

According to the Tax Agency, professionals under direct estimation must keep:

The Tax Agency's economic activities leaflet lists the same four books for professionals under simplified direct estimation.

Mandatory since 2019, also with accounting

The Tax Agency states that since 1 January 2019 these books are mandatory even if the professional voluntarily keeps accounts conforming to the Commercial Code. That is, keeping commercial accounts does not exempt from the income tax record books.

The rules the Tax Agency itself cites are Article 104 of the Income Tax Law, Article 68 of its Regulation and Order HAC/773/2019 of 28 June, which regulates the keeping of income tax record books.

The book of advances on account and disbursements

This is the book most characteristic of the legal profession. It records two types of movements:

• Advances on account: amounts the client hands to the lawyer on account.
• Disbursements: payments the lawyer advances on the client's behalf.

Keeping it well is useful in two ways. For tax, it separates what is the lawyer's income from what is the client's money. For ethics, it fits with the obligation to issue a receipt for all advances received and to settle them, which the Code of Ethics sets out, and with the rules on managing client funds.

Electronic formats

The Tax Agency makes available electronic formats of the VAT and income tax record books, with standardised designs and templates in electronic form. According to the Agency's page, they serve, among other things, to meet requests and to prepare income in Renta WEB, form 303 with Pre303 and form 130.

Using those formats makes it easier for information to be consistent across the different forms: the instalment payments of form 130, quarterly VAT and the annual return.

Mistakes to avoid

• Mixing advances with income. An advance on account is not a fee until it is applied to the invoice. If it is entered as income from the start, the income book no longer reflects reality.
• Entering investment goods as an expense. A computer or a piece of furniture is not deducted at once, but through depreciation, and must appear in its own book.
• Leaving it to the end of the year. Reconstructing twelve months of movements in January is the surest way to make mistakes.

How to keep them without complications

1. Enter each invoice issued in the income book on the same day it is issued.
2. Record each expense with its invoice, separating those that affect the activity only in part, such as home utilities.
3. Register investment goods with their date and value, to calculate depreciation.
4. Open a card per client in the advances book, with inflows, outflows and balance.
5. Review quarterly that the books match the forms filed.

Mandatory e-invoicing between businesspeople and professionals will change how invoices are issued and received, but not the obligation to record. More guides in Solo and small-firm lawyers.