My Budget predictions last week talked of law firm owners and their partners’ focus on the Budget being more in hope that it 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.
The legal sector operates through not just traditional partnerships but as sole practitioners, partnerships including LLPs and limited companies. All will have breathed a sigh of relief that nothing hampers the recovery, which Rishi Sunak indicated would be back to pre-pandemic levels by the middle of next year. Whether that is realistic, aspirational or plain deluded I will not dwell on and simply take the positivity from that statement. Positivity and confidence breeds entrepreneurship and activity – as I say above the legal sector thrives off all times of activity and therefore none of the Chancellors’ announcements to me stand in the way of that happening.
In the near-term, those trading as sole practitioners and partnerships see no immediate rise to Income Tax or National Insurance levels – therefore tax being paid or both their profits and employing people will not significantly change, although watch out for any possible earnings hikes that may drag you into higher rates, if profits are improving.
Those trading as limited companies (and there are a huge number) will probably have focused on two elements:
- From 1 April 2023, profits less than £50,000 will still be taxed at 19% and even those with profits between £50,000 and £250,000 do not pay the increased advertised effective of 25% until it hits that higher threshold. Those companies earning profits over £250,000 - which is not a huge amount if that is a law firm with three ‘partners’ - will be taxed 25%, a big hike from the 19% in place now and until 2023. Tax planning opportunities to be considered, I would suggest?
- A super-deduction was announced in respect of new plant and machinery assets purchased from 1 April 2021, where you get allowance for 130% of the cost rather than 100%. Now, whether that includes a new computer you may be considering buying will be worth checking the small print. Additionally, whilst that brings forward relief one might ask whether also bringing cashflow hit forward for relief at 19% rather than at 25% in two years’ time is worth it?
The extension of the stamp duty holiday is not just about keeping momentum in the property market but is much about ensuring, hopefully, an orderly fashion through the conveyancing process. I’m sure all readers within those departments will be very pleased to see that there is an extension to June and are transitioning back from where we started to the end of September. This can mean some conveyancers get their lives back, as I am aware of pressure mounting unreasonably from parties to these deals and the stress and risk on things going wrong that comes with that. No law firm owner wants a claim on PI simply because of having to meet government enforced deadlines – although that has perhaps just moved three months. Do price your conveyancing fees appropriately in the meantime.
As regards to management within law firms, I would encourage a glance at the 'helping businesses grow' section where there is reference to subsidies by the government for help and mentoring from experienced business professionals, along with some help towards the cost of productivity-enhancing software. Whilst obviously at present I do not know whether the latter could include upgrades to CRM systems within law firms, previous incarnations of the mentoring program I have been involved with have provided huge benefit to businesses that have engaged, even ignoring the subsidy in respect of the fees incurred.
The Freeport announcement will no doubt interest those firms with cross-border expertise and clients that trade internationally. More details are to be announced but again it appears forward-thinking, concentrating on making the UK a great place to do business.
Therefore, as always, and not often said on Budget Day, don’t let the tax dog wag the commercial tails of your business but do keep an eye out for tax planning opportunities and engage where possible with good management techniques. If the positivity I talk about comes through we may all get through this making some money and not having our tax burdens increased significantly.
Peter Noyce is partner and legal sector specialist at Menzies LLP