A couple of decades ago, lawyers and those responsible for running law firms would have simply been focused on income tax and national insurance rates in any chancellor’s statement. Times have moved on. Firms are not only partnerships (traditional and LLPs) and sole practitioners, but also limited companies and quoted entities.
So what is in it for all of us who are in, and advisers to, the legal sector?
If you remember, the spring budget suggested national insurance was going up, but then it came down a couple of days later. That was politically driven and about a broken promise, so it is probably unsurprising that such a change was not announced last week. It would have played into the hands of opposition parties, despite there having been an election in the interim.
It is fair to say that headline rates were not massively affected, only some of the thresholds tinkered with a little. This has to be good news for businesses looking for some consistency from our taxation system, especially those that forward-plan (or fund) their tax payments, whether they be 31 January, 31 July or nine months after the accounting period of a limited company.
Those partners lucky enough to be earning decent incomes can still look to pension planning as tax-efficient, as the feared-for hits were not forthcoming. This relief, though, will not last forever, so a proactive approach with your financial adviser would be sensible. The lifetime allowance is increasing, slightly reversing the more dramatic recent decreases.
It has to be said, though, that it certainly was not a budget to encourage investment in people. No obvious reliefs have been enhanced for law firms who employ a large number of people across the sector and have already been hit with auto-enrolment in recent years which (while considered morally sound) many view as an additional tax on employing people.
There was, however, some cheer for residential conveyancers (who would have been nervous given the recent uptick in the base rate) with the abolition of stamp duty for first-time buyers up to £300,000, along with repeated assurances about housing being of utmost importance to this government, and the building of new houses and targets indicated.
One theme that will not go away (while not specifically referred to by the chancellor) is the gig economy, or employed vs self-employed status. While, again, I am not suggesting any collusion, it would certainly be in the Treasury’s interest for the self-employed to be dragged into employment. Recent court cases suggest things may go in that direction and that would add to the employer’s national insurance bill along with auto-enrolment associated costs.
There is, perhaps, some good news for technology providers to the legal profession. As all professional services are said to be becoming more automated, and embracing artificial intelligence, the enhanced research and development tax relief will please those providers that are truly groundbreaking. Perhaps law firms could refer to this when negotiating costs of software and other services provided by such companies.
We are pretty much as we were. As always it comes down to good financial behaviours and being able to run your practice in an efficient and driven way that will provide the net income (after whatever tax level the chancellor attaches to your earnings) that will see you through the challenging couple of years ahead. On that challenge, the government is upping its Brexit preparations spend by £3bn. No doubt law firms’ own contingency planning will address whether they are increasing capacity for more advisory work on that subject or see it as a threat.
Peter Noyce is the lead partner for the legal sector at Menzies and author of Brighter Thinking for Law Firms