The tax system isn’t’ getting any simpler, but at least there’s some good news for law firms, according to Andy Poole and Graham Arnott from Armstrong Watson.
George Osborne’s eighth budget was a wide ranging affair. He downgraded the UK’s growth forecast and warned of the risks to the economy of leaving the EU, but his main stated intention was that of putting stability and the next generation first. A sugar tax to be introduced in 2018 and a lifetime ISA for the under 40s may grab the headlines, but there were also a number of other significant tax changes which will effect law firms.
The chancellor announced a change to the way stamp duty land tax (SDLT) is calculated for non-residential property transactions which complete on or after 17 March 2016. The SDLT rates for purchases of non-residential property will now be on a progressive basis, rather than the current ‘slab’ system where a single rate applies to the whole consideration. The new rates are 0 per cent on the first £150,000, 2 per cent on the next £100,000 and 5 per cent on anything above that. The changes do not affect purchases of residential property, which moved from a ‘slab’ basis to its own progressive system in 2014.
We were probably due some further changes to capital gains tax (CGT) and the chancellor didn’t disappoint us. The current CGT rates of 18 per cent and 28 per cent are reduced to 10 per cent and 20 per cent respectively from 6 April 2016, except for gains arising on residential property where the current rates will continue to apply.
Last year’s Finance Act introduced measures to combat the perceived abuse of the CGT Entrepreneurs’ Relief rules. However these changes could also result in the relief not being due on ‘associated disposals’ when a business was passed on to the next generation under normal succession arrangements. It was announced in the autumn statement that changes were being considered to mitigate the impact of the Finance Act 2015 rules and this have been confirmed in the Budget. Helpfully these changes are to be backdated to apply to associated disposals on or after 18 March 2015.
The rate of corporation tax is to be reduced to 17 per cent for the financial year 2020. This is an additional 1per cent cut on top of the previously announced reductions. The current rate of 20 per cent is already due to fall to 19per cent on 1 April 2017 and was then due to reduce to 18per cent on 1 April 2020 so this is further welcome news for corporate structures particularly given the imminent changes to the taxation of dividends announced last year.
Class two national insurance contributions are to be abolished from April 2018 for the self employed saving them around £145 per year at current rates. Further increases in the tax free personal allowance to £11500 and the 40 per cent tax threshold to £45,000 in April 2017 will also be welcomed by many.
In summary this was yet again a Budget with more changes than expected and it will take some time to analyse its full impact. Certainly the tax system isn’t getting any simpler but there is at least some good news for law firms whether they operate through a corporate or non-corporate structure.
Andy Poole is the Legal Sector Partner at Armstrong Watson, specialising exclusively in advising law firms. Graham Arnott is a Tax Director at Armstrong Watson, contributing to the legal sector team. Andy heads the legal sector team at Armstrong Watson, which has 15 offices and over 400 people. 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.
Armstrong Watson has been exclusively endorsed by The Law Society for the provision of accountancy services to law firms throughout the North of England.