Steve Roberts looks at the top-level developments in November’s Budget for law firms.
The chancellor delivered his Autumn Budget treading a balance between addressing the Brexit issues facing the country, and the problems of making significant policy announcements in a minority government. He confirmed, as many had predicted, that GDP would be revised downwards, providing further evidence of the productivity gap.
On the positive side, the Office of Budget Responsibility are predicting that borrowing will reduce to its lowest level in 20 years and should reach 1.1 per cent of GDP by 2022/23.
A summary of the main changes that may impact law firms are as follows:
Stamp duty land tax (SDLT)
Perhaps the most newsworthy announcement was the exemption for the first £300,000 of a property’s value from SDLT, for first-time buyers, when purchasing property worth up to £500,000.
From a business perspective, the change from RPI to CPI when setting business rates will be a much-welcomed change, as well as address the so-called ‘staircase tax’ whereby businesses which operated on more than one floor could be taxed on a valuation that looked at the value for each floor, which was generally greater than the whole. The government is looking to legislate soon to remove this unfairness and bring business rates back to their previous levels.
For firm’s operating through a corporate structure, the chancellor is sticking with his previously announced plan of reducing the rate of corporation tax to 17 per cent by 2020, but he will address the capital gains tax (CGT) allowance that companies can claim in line with inflation, by freezing it from January 2018.
There have been suggestions that the VAT threshold should be reduced, as it is considered a block on growth for smaller businesses, but the chancellor chose to maintain the threshold for now. He will, however, consult on this suggestion which may lead to a much lower VAT registration threshold in the future.
From a personal taxes perspective, there was further progress towards the election manifesto pledge of a £12,500 personal allowance and a £50,000 higher-rate band threshold, with increases to £11,850 and £46,350 respectively from April next year.
For those with a company car, the diesel supplement for benefit in kind purposes will increase from three per cent to four per cent, meaning a greater income tax bill. It will also push up the NIC cost to employers.
One prediction widely written about that didn’t materialise was a further restriction on pension tax reliefs, which is good news for people in the 40 per cent tax bracket who make pension contributions.
There was also an increase in the lifetime pension allowance, from £1m to £1.03m.
CGT for non-UK residents
For firms that advise non-UK resident individuals and non-UK resident companies that own UK property, from April 2019 all gains on immovable UK property will be brought into charge to tax.
Ever since the government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017, there has been concern that the next step would be to extend the reforms to the private sector.
It appears that these concerns may be well-founded, following confirmation that the government will consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms. The consultation is due next year.
Steve Roberts is a tax director at Armstrong Watson LLP and is part of Armstrong Watson’s specialist legal sector team. The legal sector team advises law firms throughout the UK on strategic, structural and other business improvement issues as well as providing efficient accounting, tax and SRA accounts rules services. Further information can be found at: www.armstrongwatson.co.uk/legalsector
The Law Society has exclusively endorsed Armstrong Watson LLP for the provision of accountancy services to law firms throughout the whole of the north of England.