In depth: Budget 2025 - what it means for solicitors

In an unashamedly tax-raising budget billed by one newspaper as ‘a red box of broken promises’, the Law Society found reasons for cheer. Chancellor Rachel Reeves failed to impose two widely predicted measures: a new tax on members of limited liability partnerships and mandatory regulation of tax advisers. 

Welcoming the LLP news, Society president Mark Evans said the chancellor had evidently listened to the profession. ‘The Law Society has been lobbying the government on behalf of our members to ensure that firms using LLPs will not face a new tax in today’s budget. The legal sector is already contending with major regulatory changes in anti-money laundering and compliance. Any additional burdens would have created a perfect storm on firms’ ability to invest, hire and contribute to growth, which could prove damaging to the wider economy.’

The Society also welcomed the announcement in the budget’s small print that ‘following consultation, the government will not regulate tax advisers and will work in partnership with the sector to raise standards in the tax advice market’. Earlier this year, it attacked draft legislation as being cast too widely and imposing new burdens on small firms. 

Less welcome to the legal profession – though affecting only a small minority of solicitors – is a hefty increase in the Economic Crime (Anti-Money Laundering) Levy imposed on entities regulated for anti-money laundering purposes under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. In 2026/27, the levy on medium-sized entities will rise from £10,000 to £10,200. However, entities with UK revenue greater than £500m will pay substantially more: £500,000 in the case of a firm with revenue between £500m and £1bn; £1m for those in the billion-pound league. 

'Some firms will be facing an increase of almost 1,400% in the levy and, with the change due to come into effect in April next year, this gives firms little time to prepare'

Brett Dixon, Law Society

Law Society vice-president Brett Dixon said: ‘While we fully support the government’s ambition of having a robust defence against illicit finance and economic crime, we are disappointed to see a significant increase in the levy a number of our members will pay. 

‘Some firms will be facing an increase of almost 1,400% in the levy and, with the change due to come into effect in April next year, this gives firms little time to plan and prepare.

‘We have called for the government to provide more clarity on the evidence which led to the significant increase in the amount that will be levied per band, explain why it is deemed proportionate and fair, and which initiatives the levy will fund. We also want the government to ensure that significant increases are avoided in the future.’

In another measure aimed at economic crime, the chancellor announced plans to create a statutory basis for HMRC to reward whistleblowers. David Greene, senior partner at London firm Edwin Coe, noted that, at present, HMRC rewards are discretionary and not tied to a fixed percentage of the tax raised. Under the new plan, in cases where tax over £1.5m is recovered, HMRC will pay rewards up to 30% of the additional tax collected. ‘This means that even a modest collection of tax could lead to a payout of £1m-plus,’ said Greene. However, he warned that the scheme ‘is bound to be hedged in by numerous conditions, one of which will be that a whistleblower cannot benefit from their own wrongdoing’. 

Meanwhile, as in previous years, the budget announced ‘new powers to close in on promoters of marketed tax avoidance’. A consultation on the proposed new measures will be published early next year. 

Elsewhere in the budget small print, the Treasury opened a consultation on outlawing ‘non-compete’ clauses in employment contracts. Such clauses ‘play a part in restricting employee movement, limiting knowledge spillovers and can undermine incentives for innovation’, the Treasury said. Nor are the clauses restricted to high-paying jobs: around 5 million employees in Great Britain work under a contract that contains a non-compete clause, with a typical duration of around six months, the document states. 

Even badly drafted, legally problematic clauses can deter labour mobility because of the sheer cost of a legal challenge, it says. The document seeks views on whether the threat of legal costs present an obstacle – and if so, whether claimants have access to mechanisms such as fixed recoverable costs, after-the -event insurance or conditional fee agreements. 

Overall, though, the story was of tax rises: on dividends, homes valued at more than £2m and electric cars. A £2,000 annual cap on salary sacrifice pension contributions will be especially controversial, said James Dean, pensions partner at business firm Freeths. ‘With many people already struggling to save enough for their retirement, this policy could hugely discourage pension savings and undermine long-term financial security.’

And the verdict of John-Paul Dennis, partner at Liverpool firm Jackson Lees: ‘The chancellor’s latest budget promises £26bn in extra revenue by 2029/30, but behind the headline figure lies a patchwork of stealth taxes, symbolic surcharges and new levies that will reshape the financial landscape for private clients.’