In a shocking breach of Whitehall protocol, the most interesting measure in Alistair Darling’s Budget was not widely trailed: the rise in the top rate of income tax to 50%. Such was the confusion this unheralded bombshell caused, it took most media organisations a good couple of hours yesterday to get around to leading their coverage off the only measure that was going to have much relevance for business.
And it will have particular relevance for commercial lawyers, since the way the profession structures its earnings means it is already a higher tax contributor proportionately than many domestic industries. With the UK top 50 alone generating in the region of £4bn of profit in 2007-08, two thirds of it in the UK, the rises in tax and related cuts in personal allowances and tax relief on pensions means that from 2010 legal professionals will be contributing hundreds of millions of pounds in extra tax annually, at a time when tax receipts from the City are collapsing. And, unlike most companies, law firms have little scope to manipulate their earnings to cut taxes to mitigate these measures.
