What’s on the horizon for Professional Services firms?

The key changes are:

• Fiscal drag – The recent Autumn Budget’s extension of frozen tax thresholds for a further three years (until 2031) will impact both employees and partners. However, this may be most felt by those on lower and middle incomes, and individuals in receipt of Child Benefit will need to monitor the level of their income;
• Tax rates - From April 2026, income tax rates on dividend income will increase by 2 percent (basic rate 10.75 percent, higher rate 35.75 percent, additional rate unchanged at 39.35 percent). Income tax rates on property income and savings income will then rise by 2 percent (basic rate 22 percent, higher rate 42 percent, additional rate 47 percent) from April 2027. Firms with income from these sources should review partner distributions and tax reserve policies;
• Profit extraction - Despite there being no changes to the corporation tax rate (25 percent), from April 2026 extracting profits from corporate subsidiaries will become less tax-efficient following the income tax on dividend rate increases. Timing of any distributions will be important, and firms should be reviewing their structure to consider the tax costs;
• Capital allowances - A new 40 percent first-year allowance applies to main pool plant and machinery expenditure from 1 January 2026. This will be balanced against a reduction of the main pool rate to 14 percent effective 1/6 April 2026 (for corporation tax and income tax respectively). This new allowance will be welcomed by professional partnerships, such as law firms, who have not been able to benefit from the full expensing regime introduced in Finance (No.2) Act 2023. Firms undertaking substantial projects (exceeding the £1 million annual investment allowance) should review the timing of expenditure and quantify the available tax relief;
• Pensions - From 6 April 2029, pension contributions exceeding £2,000 per annum made under salary sacrifice arrangements will be subject to both employee’s and employer’s NIC. As professional services firms are people businesses, this may significantly increase total reward costs. Firms should review pension and benefits packages, model the impact, and consider the implications of any changes on their people; and
• Exit strategy - For disposals of shares to Employee Ownership Trusts (EOT) on or after 26 November 2025, capital gains tax relief has reduced from 100 percent to 50 percent. Where EOT relief is claimed, neither Business Asset Disposal Relief nor Investors’ Relief may apply to the chargeable part of the gain. With reduced tax incentives, potential resulting cash flow issues and consideration typically payable over several years, potential sellers may wish to consider other options instead such as a trade sale or private equity investment.

National Insurance and the BlueCrest case

The tax status of UK LLP members remains under scrutiny, with the Supreme Court hearing in the BlueCrest case having taken place on 28–29 January 2026. Whilst waiting for the judgment, firms should continue testing the Salaried Member rules and maintain clear, contemporaneous documentation to evidence compliance.

Key actions

Taken together, these tax changes and evolving case law underscore the need for firms to adopt a proactive approach by reviewing structures, partner distributions, capital investment plans, pension arrangements and succession strategies. Early consideration will help mitigate risks, manage tax costs and ensure that decisions align with long-term business objectives.

Our professional services team comprises specialists across all tax and advisory areas, including pension auto-enrolment and employee benefits. Please contact us to discuss how we can help your firm navigate these changes.

For further information please contact:

• Katie Illman
• Richard Green