Budget 2021: Key highlights for professional services firms

The speculation about how the Chancellor might balance the books in the 2021 Budget was high, but the reality of the Budget was an admission that it is too soon for drastic changes, the roadmap ahead still clouded in uncertainty. Here we discuss the potential impacts in more detail and highlight other key changes for legal, consultancy, recruitment and property advisory firms to consider.

What are the key changes for professional services firms to consider?

Just a year ago corporate tax rates were held 19% rather than decreasing to 17%. Now we can look ahead to the main rate of corporation tax increasing to 25% from 1 April 2021. Firms operating through partnerships and limited liability partnerships (LLPs) will continue to benefit from a lower effective rate of tax on full annual profit extraction compared to companies. However the announcement of a super deduction and the special rate relief for certain expenditure qualifying for capital allowances that is only available to corporates and not partnerships might offset some of that advantage. These extra deductions are available to corporates between 1 April 2021 and 31 March 2023.

The Chancellor maintained his support for jobs and employment by extending the furlough scheme until the end of September 2021.

Many firms will have been preparing themselves for the off-payroll labour rules for some time now following their delay last year and as expected, there is no further postponement and, therefore, these rules will come into force from April 2021.

While there is a freezing of income tax personal allowances and other allowances from 2022 until 2026, it was most notable that we did not have any mention of changes to capital gains tax rates or Business asset disposal relief. Neither was the widely discussed topic of aligning National Insurance for self-employed with that of employees mentioned - perhaps this is one to look out for further along the road.

It is clear that the 2021 Budget took some small steps towards setting out how the cost of the pandemic will be met, however, there is still a long way to go cover the highest borrowing since world war two and therefore we are likely to see further measures in future budgets.

Other changes to be aware of:

  • Corporation taxes: In difficult times for the economy, there was some good news for companies seeking to invest and no major shocks from the Chancellor. Here you can read more detail on specific corporation tax changes.
  • Personal taxes: There were few changes to personal tax in the Budget other than freezing of the personal and other allowances.
  • Employment taxes: CJRS has been extended and new incentives to encourage employment and productivity.
  • Indirect taxes: VAT relief for hospitality and VAT threshold freeze.
  • Other taxes: Business rate relief, measures to tackle COVID-19 fraud and an extension to the Stamp Duty Land Tax holiday.

For more details on these and other measures announced, please see our full Budget 2021 analysis. If you would like to discuss any of these changes please contact Neil Williams or your usual BDO adviser.

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