UK law firm closures limited in 2020 despite impact of pandemic, lockdowns
Number of firms declines just 2%, helped partly by drop in operating expenses, according to Hazlewoods
The number of UK law firms held steady in 2020 despite the economic impact of the coronavirus pandemic and government-imposed lockdowns, according to Hazlewoods Chartered Accountants.
There were 10,080 UK firms registered as of December 2020, a decline of just 2% compared to December 2019 when there were 10,278 firms registered. Hazlewoods says that fall is broadly in line with the general trend seen in previous years as the legal profession continues to consolidate.
Andy Harris, a partner at Hazlewoods, said: “There were fears that the effects of the pandemic could drive an increasing number of law firms to close – thankfully that hasn’t been the case and the legal profession has weathered the storm well.”
Hazlewoods says one reason firms have not been adversely impacted by the pandemic and associated lockdowns is that while income has fallen, operating costs have also fallen in tandem given that remote working has trimmed overheads.
Another reason Hazlewoods cites is that law firms have been able to defer tax and VAT payments, while others have been able to secure rent holidays from their landlords. Concerns that firms might struggle to renew their professional indemnity insurance in the October renewal season also failed to materialise. Only a small number of firms were unable to gain insurance, and while premiums rose, firms that needed financial support were able to access government funding to cover payments.
Harris said: “The Government’s moves to delay tax and VAT bills and introduce the CBILS scheme have been vitally important to law firms, particularly those that have seen their professional indemnity insurance premiums jump. Being able to borrow at relatively low rates to pay those premiums has given a lot of firms some extra breathing room.”
Hazlewoods also noted that while some law firm practice areas such as commercial property and M&A were quieter during lockdown, other areas – particularly residential property – were busier than normal.
Harris said: “The Stamp Duty holiday has also been a great help to a lot of small and mid-sized firms. Residential property work has boomed in recent months and for some firms, that is making up for a drop-off in other areas.”
The UK legal industry posted its strongest September on record last year, beating the previous record set in 2019, according to Office of National Statistics data, as the economy recovered from the first lockdown.