Proposed stealth tax on law firms falls back in the spotlight ahead of Autumn Budget
Ahead of the Autumn Budget, the Law Society for England and Wales has warned chancellor John Healey that the proposed levy on interest earned from money held in client accounts risks hampering investment in the legal sector.
Commenting on the proposed levy, Hywel Pegler, head of professional and business services at RSM UK, said: “As we head towards the Autumn Budget, the proposed Interest Lawyers’ Client Account Scheme (ILCA) remains centre of attention across the legal sector. It represents a potentially seismic shift for law firms already navigating numerous challenges such as basis period reforms, accelerated tax payments, inflationary pressures and a continued need for AI investment.
“While the levy aims to ensure that legal funds are utilised to support and strengthen the UK legal justice system and provide a much-needed boost of investment, there remains a risk that the changes could have a significant impact on firms that have historically generated large associated interest income from clients’ money held. For some firms, this could create significant additional pressure on funds, particularly for smaller firms which may not have the scale and capacity to absorb the additional costs.
“There is a risk that the new levy could have a real impact on investment activity across the sector, hampering future growth opportunities. Firms may also need to increase prices and consider their capital and banking arrangements. In some cases, it could lead to job cuts or the closure of some high-street firms which do not have the capacity to bridge the gap.
“With speculation and concerns once again ramping up ahead of the Budget, legal firms need to consider the potential implications of the levy and ensure they are adequately prepared for any future changes. This is the best way to mitigate any potential disruption and ensure resilience across business operations in the long term.”