Following today’s Budget (15/03/2023), we have put together the top 5 takeaways for professional services firms from a legal and practical perspective.
- Headline corporation tax increasing to 25%. Low corporation tax rates have been cited as a reason for professional firms choosing a company structure over an LLP. This higher tax rate shifts this balance. Firms will be doing their sums. Will some wish to change legal form? Maybe, but it could be complicated. Legal and tax advice will be vital. The key question should be how the legal entity helps the business achieve its wider strategic and cultural objectives. [For more, watch ‘In Praise of Partnership: How Effective is the LLP Structure to Support Growth & Governance in Professional Services Firms?’]
- Inflation expected to drop. The Chancellor’s prediction that inflation will drop to 2.9% at the end of this year will be welcome for firms who have been grappling with significant price increases, but very limited scope to pass those increased costs on to clients (who face the same pressures). The reduced pressure on cash may be welcome and may reassure firms who have been considering measures to preserve cash, faced with uncertain economic outlook and imminent basis period reform tax changes. [For more, read our article ‘Do Firms Need to Restructure Due to Recession?‘]
- Greater funding for childcare. There will be more funding for childcare costs from a younger age. At face value this could be good for professional services firms as it is widely recognised that a huge pool of talent is lost in connection with maternity leave and the return to work. Having said that, childcare costs are not the only problem here, especially for those in higher paid fee-earning roles. To recruit and retain the best talent, firms will still need to work on ensuring viable working conditions for working parents (whether or not they took a prolonged period of parental leave). [For more, read our article ‘Employee Rights on Returning to Work after Maternity Leave and Time Off to Care for Children‘]
- Pension changes. The lifetime limit has been lifted. In practice, this will only benefit the highest earners and most senior people in the professional services world. It may however have wider implications, as it may affect those partners’ decisions about retirement dates and therefore have an impact on firm-wide succession planning. Managing Partners will want to keep an eye on this to manage evolving expectations. [For more, read our article ‘Professional Firm’s Year-End Planning Needs to be Different in 2023’]
- Reduced duty on beer, wine and cider sold in pubs. Are office parties back? Jeremy Hunt seems to think so. The Solicitors Regulation Authority will be less keen having highlighted the role of alcohol in its recent sexual misconduct guidance. [For more, listen to our webinar recording ‘SRA Sexual Misconduct Guidance – Self-reporting, Impact of alcohol, Consent and “Proximity to practice” – What Lawyers and Firms Need to Know‘]
If you are a professional services firm and wish to discuss these issues or have any specific questions about how the Budget may impact your business, please contact Corinne Staves, Zulon Begum, Andrew Pavlovic or Clare Murray.