The Chancellor of the Exchequer, Rishi Sunak, announced the budget statement and rather than focusing on quick tax takes now, he is encouraging all to plan for the long term, while making it clear that tax increases are inevitable. That said, if the growth and investment he is trying to encourage comes through, perhaps taxes, other than Corporation Tax, will not be hiked; we can but hope!!
Positivity and confidence breeds entrepreneurship
The legal sector, in all forms, from traditional partnerships (and those trading as LLPs), sole practitioners and limited companies will have breathed a sigh of relief that Rishi expects recovery will be back to pre-pandemic levels by the middle of next year. Whether that is realistic or aspirational we will not dwell on and simply take the positivity from that statement. Positivity and confidence breeds entrepreneurship and activity – the legal sector thrives off all types of activity and therefore none of the Chancellors announcements stand in the way of that happening.
Those trading as sole practitioners and partnerships see no immediate rise to Income Tax or National Insurance levels – therefore tax being paid on 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 should focus on two areas:
- From 1st 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%, and that may well include a new computer you may be considering buying. Additionally, whilst that brings forward relief one might ask whether also bringing the cashflow hit forward for relief at 19% rather than at 25% in two years’ time is worth it?
Law firm management
The “helping businesses grow” section of the Budget offers 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 we do not know whether the latter could include upgrades to CRM systems within law firms, previous incarnations of the mentoring program we have personally 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 to be announcement but again appears forward-thinking concentrating on making the UK a great place to do business.
Stamp duty holiday
The extension of the stamp duty holiday is not just about keeping momentum in the property market but is much about ensuring hopefully retaining an orderly conveyancing process and we’re 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 pressure mounting unreasonably from parties to these deals and the stress and risk on things going wrong that comes with those upcoming deadlines. 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.
Therefore as always, and not often said on Budget Day, don’t let the tax dog wag the commercial tails of your business but have an eye out for tax planning opportunities and engage where possible with good management techniques and if the positivity shines through we may all come out the other side having made profits and generated cash without our tax burdens increased significantly.