Budget 2017 – What it means for the Not for Profit Sector

With the vast majority of measures already being announced, and with very few sector specific announcements, there were no real surprises for the Not for Profit (NFP) sector in the 2017 Spring Budget.

Items with a NFP focus which were previously made public and will come into effect shortly include:

  • Amendments to Social Investment Tax Relief (SITR) – whilst the government has increased the amount of investment which can be raised under this scheme to £1.5m from 6 April 2017, they have also introduced a number of restrictions. With the NFP sector becoming increasingly diverse, it is hoped that SITR will help charities raise much needed investment.
  • Introduction of Museum and Galleries Tax Relief – from 1 April 2017 both charitable and non-charitable companies which develop new exhibitions will be able to claim tax credits of up to £100,000 under this new relief.

However, the Chancellor reminded us in the Budget that the NFP sector is due to be hit by a number of rising costs, including:

  • Increasing inflation – the consumer price index is predicted to rise from 0.7% in 2016 to 2.4% in 2017, before decreasing gradually to 2.0% in 2019.
  • Increase to the Living Wage – the Living Wage is set to increase by 30p to £7.50 p/h from 1 April. With much of the NFP workforce in typically low paid social care, this increase will have a large impact on the charity sector.
  • Introduction of the Apprenticeship Levy – whilst this will only affect larger charities with a paybill of over £3m, from 1 April 2017 the levy will act as a further payroll cost if the organisation is unable to utilise its contributions for training.
  • Increase to Insurance Premium Tax – this is due to increase by 2% to 12% from 1 June 2017. This increase follows last year’s increase from 9.5% to 10%.
  • Increase to the Personal Allowance – for the seventh consecutive year the personal allowance will be increasing by £500 to £11,500, taking 1.3m taxpayers out of income tax altogether thereby reducing the amount of individuals who can opt for Gift Aid.

On a positive note, the Chancellor did announce some good news for women’s charities. A range of women’s charities will collectively benefit from £12m from the “Tampon Tax Fund”. Plus the government will be providing an additional £20m over the Parliament to support organisations working to combat domestic abuse.

Furthermore, charities involved in research and development (R&D) will be encouraged by the announcement that the government are seeking to review the R&D tax regime. Charities will be hoping that the review will include the reintroduction of the R&D tax credits for non-university charities.

Whilst the Budget didn’t contain many surprises, with increasing costs imminent, perhaps the Chancellor missed an opportunity to announce policies which could have helped support the NFP sector further.

Contact us
If you would like to understand more about any of these areas or would like to discuss this with a member of our Not for Profit Team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative.

Legal Benchmarking Report reveals the cost of premises is increasing yet firms are still not investing in IT and remote working

Benchmarking ThumbnailOur Legal Benchmarking report 2016  points to encouraging signs of growth for a second year, most notably through an upturn in the Property and Construction Sector.

The review, undertaken by our Professional Practices Group, indicates a much more positive outlook across most firms, helping to ease the considerable financial pressures experienced in recent years.

MHA Report highlights:

  • A year of growth in fee income across all size firms, with growth of between 13% and 27% for firms with more than five equity partners.
  • A direct increase in business in the Property and Construction Sector. We have actually seen a shortage of lawyers in the Property Sector, as the demand for their services took off so rapidly.
  • A lack of investment in IT accompanied by an increase in premises costs.
  • Across our different sized firms, the comparative lock up days this year to last has ranged from 5 days worse to 13 days better, with the more than 25 partner firms making the 13 day improvement.
  • In 2015 equity investment ranged from £91,000 to £146,000 dependent on the number of partners involved in the business.
  • External finance makes up between 20% to 38% of the overall finance invested in practices with the remaining amount being equity partner investment.
  • All firms have been under pressure to make higher pay awards to retain current staff. Also, the impact of automatic enrolment pension schemes is now showing in the increased spend on staff.
  • We expect 2016 to continue to be difficult for this sector.
  • We expect further pressure on staff pay scales into 2016.

The full Legal Benchmarking report 2016 is now available.

Karen Hain, Head of the Professional Practices sector explains: “A significant downward pressure on net profits is the high costs of keeping premises. It is clear from our review that firms have not downsized their premises, with the larger practices actually expanding. To make any significant inroads into premises cost savings, firms will need to make substantial changes to their way of working, such as hot desking, home working or paper free working. The lack of change in working procedures is echoed by the lack of real investment in IT spend.”

Indeed, productivity and time management are also key to a profitable business and a number of efficiencies can be gained through the use of technology and improved processes.

Karen went on to say: “As we look ahead, we expect 2016 to continue to see succession planning as a key risk for law firms. Difficult questions need to be considered about future strategy, so that changes can begin to be made. Firms also need to review their funding structures to understand their cash requirements, which usually fall under pressure during periods of growth. They must have plans if additional funding becomes necessary, as traditional banking routes may be restricted. ”

If you would like to discuss any issues raised in the report in more detail or you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

Changes to Stamp Duty Land Tax – what you need to know

In a further attempt to dampen the UK Buy to Let market, the Chancellor announced that higher rates of stamp duty land tax (SDLT) would apply to purchases of additional residential properties, such as second homes and buy to let properties, from 1 April 2016.

The current rates and new rates of SDLT for additional residential property purchase are:

Band Existing SDLT rates New additional property SDLT rates
*£0 – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

 

* Only applies to purchases over £40,000

Consultation Document

On 28 December 2015, a consultation document was issued which provided some answers on the detail of the new rules, although the document also creates some questions.

The higher rates will not apply to purchases below £40,000, purchases of caravans, mobile homes or houseboats. Also the new rates will not apply to the purchase of a main residence to replace your current main residence, if your current residence is sold on the same day. However if the sale of your current main residence is delayed and so for a time, you will own both houses, you will have to pay the higher rate of SDLT and then apply for a refund if the old house is sold within 18 months.

The document also refers to a possible exemption from the higher rates for purchases by corporate investors or funds making significant investment in residential property. However the consultation document includes various questions on the possible scope of this relief. If planning for a transaction now, reliance on this relief will carry a risk until the scope of it is clarified.

Commencement Date

SDLT is normally payable on completion or, if earlier, on substantial performance.

The higher rates will apply to all contracts entered into on or after 26 November 2015 where completion takes place on or after 1 April 2016, or where there is substantial performance of the contract on or after 1 April 2016. Therefore if substantial performance of the contract be on or before 31 March 2016, the higher rates of SDLT will not apply.

Buy to Let Restructuring

Restrictions to tax relief for interest on buy to let mortgages are causing some buy to let investors to consider transferring their properties into limited companies. In addition, some investors are choosing to sell some of their properties to reduce debt levels on their remaining portfolio.

Both of these options could be caught by the new higher rates of SDLT and so where possible it would be better to ensure that there is substantial performance by 31 March 2016.

Next Steps

The consultation process is still ongoing, but although the detail of the new rules is being ironed out, the principle of higher rates of SDLT for second properties and buy to let properties will happen and so you need to plan on that basis.

If you would like to speak with a member of our Tax team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

Autumn Statement – what it means for Manufacturers and Engineers

Chris Coopey, Head of our Manufacturing sector, muses on what the Autumn Statement did for manufacturers and engineers.

“Of course the headlines were all around the climb-down on Tax Credits, but George Osborne’s Autumn Statement also impacted on manufacturers and engineers on a number of levels.

Foremost perhaps was the further detail put around the Apprenticeship Levy. With a strategy that some would describe as a Payroll Tax, the Chancellor announced that for companies with a wages bill of £3 million or more there would be a 0.5% charge to fund apprenticeships. This new levy is predicted to raise around £3billion and fund around 3 million apprenticeships. If standards (and numbers of potential engineers) is driven up it may be a worthwhile sacrifice, but the proof of that particular tax pudding will take some time to become apparent.

A likely reduction in funding to the Department for Business, Innovation & Skills (BIS) was flagged some time ago but with the detail becoming apparent there have to be real concerns. Given the role of the department in championing many of the areas vital to the manufacturing and engineering sector including innovation and skills any cut is likely to have a negative effect.

Looking at education more broadly, the current area review of Further Education (FE) where much apprenticeship training takes place will surely result in some consolidation, but at least the Chancellor has protected ‘core funding’ for 16-19 year olds and adult skills training. Sadly, ‘protecting’ is likely to be preserving funding at present levels, which means that inflationary pressures will eat away at the value of that core funding. Thus FE is not wholly out of the woods.

There was better news for the budget around support for science which has been increased to £4.7 billion, signalling more support for developing innovative businesses.

Also on the positive side, the Chancellor is set to exempt energy intensive sectors from the costs of renewables – recognition that high energy users need a fair deal if they are to be competitive.

All in all, a mixed bag for Manufacturing & Engineering sector, and certainly nothing that is going to move the UK’s economic equation towards a rebalancing any time soon”.

If you would like to discuss any of these issues in more detail or you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.