Matthew Jones discusses the possible ramifications for small law firms of the Chancellor's latest budget.
After so much recent talk about the difficulties facing the global economy, and with the threat of significant changes to the pensions regime already removed, many observers had predicted that George Osborne would be announcing little of note in this, his eighth budget.
However, as usual, the Chancellor had a few surprises up his sleeve, despite having to announce that the growth forecast for the UK economy has fallen to 2.0%, down from the 2.4% figure predicted in the Autumn Statement. Perhaps most notably for the general populace - and share-holders in fizzy drink companies - he finally introduced the much-vaunted Sugar Tax, in an attempt to reduce childhood obesity and diabetes.
Drip-feeding tax rises and shoring up flood defences
While there was a significant amount of good news for small legal firms in the 2016 budget, the unexpected rise in Insurance Premium Tax - which climbs from 9.5% to 10% - will be a small but unwelcome surprise for practitioners, who will see an attendant rise in the cost of their Professional Indemnity and other insurances. Having said that, it is an ill wind that blows nobody any good, and all additional tax receipts from this latest IPT rise, which are expected to total some GBP700m, have been earmarked for much-needed improvements to flood defences in the beleaguered counties of Cumbria and Yorkshire.
Raising personal allowances and the higher rate tax threshold
On a more uplifting note for partners in small law firms, the Chancellor announced a significant rise in Personal Allowances, with the tax-free portion rising to GBP11,500 from April 2017, when the basic tax rate of 20% will be payable on the first GBP45,000 of salaries, up from the GBP43,000 threshold that comes into effect in April 2016. This should allow practitioners to take slightly larger salaries, while perhaps reducing the size of their dividends: in order to offset some of the negative effects of the new Tax on Share Dividends that comes into force on 6 April 2016.
Positive predictions for the employment market
In addition to the current record-high employment figures, the government is forecasting the creation of one million more jobs over the course of this parliament. This should naturally come as a welcome boost to those specialising in employment law, who may reasonably expect to see significantly increased demand for their services as employers begin to staff up in earnest.
Lifetime ISAs for the young, for both pensions and house deposits
The Chancellor acknowledged in his speech that these are difficult times for younger members of society, particularly in regard to home ownership, which has led to the introduction of 'Lifetime ISAs' for those who will still be below the age of 40 in April 2017.
Under this new scheme, eligible taxpayers will be able to save up to GBP4,000 a year into a Lifetime ISA, receiving an extra 25% contribution from the government: or GBP1 for every GBP4 saved. Not only does this represent a new alternative to pensions, Lifetime ISA funds will be accessed tax-free when they are used to-wards the cost of a first home up to the value of GBP450,000. So while saving for a mortgage deposit remains a challenge for the young, the Lifetime ISA has the potential to give a welcome boost to the housing - and therefore conveyancing - markets in the medium to long term.
Small business rate relief, and big news on commercial Stamp Duty and Corporation Tax
Business rates are a significant overhead for many small legal firms, so the news that a rise in small business rate relief means that 6,000 small businesses will no longer pay rates, and that 250,000 will see rate cuts from April 2017, is sure to be welcomed by many practitioners.
Finally, Corporation Tax is another significant burden for small legal practices, so it is worth concluding with the happy news that this is set to fall from the current level of 20% to just 17% by 2020: ensuring that while the global economic outlook may remain troubled, small legal firms in the UK can at least look forward to handing over less of their hard-earned profits to the exchequer in the future.
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