Graduates taken on as trainee lawyers are at the heart of a row over whether their small retainer payment, also paid to management consultants and other professionals hit by the credit crunch, should be taxed.
Leading firms of lawyers and other businesses have been asking thousands of young graduates, who had been recruited and given starting dates for jobs, to delay their first day at work for six months or a year.
A small sum of money, of typically ??2,500 for six months or ??5,000 for a year, was being offered in some cases for the graduates to "go away" for a while. Law firm Norton Rose, which is paying up to ??10,000 for a year, is offering the largest sum.
But the payment is causing tax consultants to be at loggerheads with HM Revenue & Customs (HMRC) as making retainers taxable will have a big impact on graduates' ability to survive this enforced time off. Leading tax experts are pointing to tax law to back up their argument against taxing the payments, while HMRC itself remains confused over the justification for taxing these payments.
Graduate recruitment manager Karen Potts said: "It is a very complex area and may depend on a number of factors, including what they do with their time off. If it can count toward training, because they go abroad to learn a language, for example, then we understand it can also be tax-free."
