Philip Hammond has delivered his first – and last – autumn statement as chancellor. What are the key points for law firms?
So, the new chancellor has just delivered his first and last autumn statement. Philip Hammond is not standing down, rather changing the date when he announces tax changes. The spring budget will become an autumn budget, and the autumn statement will become a spring statement. Future tax changes will now be announced in the autumn budget.
The economy
The chancellor delivered a rather upbeat assessment of the economy compared to other countries, especially given that the Office for Budget Responsibility predicts that growth will be 2.4 per cent lower than expected over the next five years, following the Brexit vote.
Growth will slow to 1.4 per cent in 2017 before it starts to rise to 1.7 per cent in 2018, 2.1 per cent in 2019 and 2020, and 2 per cent in 2021. One announcement that was expected is that the country will not be running a surplus in 2019-20, but will, in fact, borrow during that year and going forward into the next parliament.
Whiplash reform
The announcement with possibly the biggest impact on some law firms is whiplash reform. While this was the subject of a previous announcement by George Osborne, the chancellor noted that the MoJ is consulting on proposals to reduce what he considers ‘unacceptably high whiplash claims’. There was no detail given, only that the government plans to bring forward supporting legislation in the Justice Bill.
Tax planning
For firms that advise on tax planning, the chancellor announced that any firm which it believes is enabling a taxpayer to utilise what it considers to be an unacceptable tax avoidance scheme, which is later defeated by the courts, will receive a penalty for doing so.
For firms unsure of whether they are operating through the right business structure, the chancellor noted that there has been a growing cost to the Treasury of the incorporation of businesses. There will be a consultation that will consider changes to the taxation of different ways of working, with a view to ensuring fairness.
Hammond confirmed his intention to work towards the higher personal allowance previously announced, of £12,500, before individuals start to pay tax at 20 per cent, and £50,000 before they hit the higher rate tax of 40 per cent, by April 2020. There are changes to the salary sacrifice rules to ensure they are taxed the same way as salary, although the main benefits that employees use, such as pensions and child care costs, remain untouched. The national living wage is to increase from £7.20 to £7.50 from April 2017.
The chancellor confirmed once again that the reduction in the rates of corporation tax will be introduced, as planned. This is helpful news for firms that operate through a company.
Hammond recognised that production was a problem for the country, and so is introducing a National Productivity Investment Fund, worth £23 billion, that will target four areas: housing, transport, digital communications and research & development.
He made no changes to inheritance tax or capital gains tax, except to abolish the exemption which had previously been introduced for those employees who invested in employee shareholder status (ESS), introduced in 2013. He also sought to tackle VAT flat rate avoidance by changing the scheme for those in the service industry, although this could see many leaving the scheme as they may be worse off when the changes come into force on 1 April 2017.
Conclusion
This autumn statement wasn’t loaded with new announcements, but was mainly a repeat of previous ones. With the uncertainty of what Brexit may bring, little change and some certainty around taxation will hopefully help law firms plan a stable course during the coming year.
Steve Roberts is a tax director at Armstrong Watson and is part of Armstrong Watson’s 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 for the provision of accountancy services to law firms throughout the whole of the North of England.
