While those managing law firms and the owners of these businesses themselves will be casting an eye out for Rishi Sunak’s statements on 3 March, I would expect this to be in many respects with their clients in mind and not necessarily themselves.
Law firms’ corporate and commercial teams will be fearing any fiscal adjustments that makes business transactions less likely, whether that be merger and acquisition activity or cross-border trade.
Conveyancing teams, especially those on the residential side, will be looking at the expected announcement on whether the stamp duty holiday will continue or not with great interest, as that has given a huge shot in the arm for those teams that saw their caseloads grind to a halt in April and May last year.
Law firms and the owners themselves, especially those looking to exit in the near future, will be looking at the Chancellor’s announcements as regards any upward movement in tax rates of capital gains or the removal of what is left of Business Asset Disposal relief, previously known as Entrepreneurs’ Relief. Whilst the tax tail should not wag the commercial dog, we have seen a lot of discussions between law firms that may have had an eye on this relief, and hoping for a continuation of this relief, especially where negotiations have been a touch more protracted than originally envisaged.
Employment lawyers will have already been discussing implications around IR35 with their own clients but in many respects the law firm itself should look carefully at its own consultants and how they are being remunerated to check they have their own house in order.
My tax specialising colleagues within Menzies are fearful of increases to capital gains rax rates and possible increases to corporation tax and employers’ national insurance. Again, while firms will find these possible increases both unfortunate and unhelpful, I do believe they will be more externally focused, hoping that the government continues to encourage inward investment and the UK is seen as a relatively low tax environment, especially for corporate profits. This will be useful for law firms with international connections, who have seen a spike in activity of companies from around Europe finding a necessity in having a UK entity, and, no doubt, the same considerations in the other direction as to how companies are structuring themselves around Europe in advance of and since 1st January 2021.
So, in summary, yes law firm owners and their partners can expect a small hike in how their profits are taxed perhaps but their main focus will be on a budget that aids recovery from the pandemic - or at least does not get in the way of that recovery - and does not hamper investment and the likelihood of transactional business of all kinds in the future.
Peter Noyce is partner and legal sector specialist at Menzies LLP