Treasury’s LLP tax proposal could add £46,000 burden per partner
Law firms’ partners could face an additional £1.4bn in tax each year if the Treasury goes ahead with imposing a 15 per cent rate of national insurance contributions on LLPs.
According to data provided by HMRC to UHY Hacker Young, partners of law firms made a total of £9.2bn in profits in the latest year.
On average, the profits totalled £307,000 for the approximately 30,000 law firm partners.
However, Chancellor Rachel Reeves is reportedly looking to target limited liability partnerships (LLPs) with a tax raid to fill the fiscal black hole.
Currently, LLP firms do not pay corporate tax on their profits.
Experts at UHY Hacker Young explained that applying a 15 per cent employer’s NICs rate would create an additional tax liability of around £46,000 per partner each year.
Neela Chauhan, partner at UHY Hacker Young, stated: “Imposing employer NICs in full would be a major blow for law firm partners across the UK.”
“We expect the government may start by introducing it at a more modest rate. But for law firms and other partnerships that would look like the thin end of the wedge, with a concern that the government would keep increasing NIC for partners over time,” she added.
Lawyers hit back
The legal sector has already hit back against the news, with the Law Society saying the move by the Treasury “makes no logical sense as a joined-up growth strategy.”
Lawyers stated that adding tax contribution to LLPs defeats the purpose for which the government established the structure 25 years ago.
Sean Bannister, chartered tax adviser at Edwin Coe, warned that by “undermining one of its main operating models”… it “shows a short-sighted understanding of what drives a services-led economy.”
Nicky Owen, partner and head of professional practices at Crowe, added, “Will professional services firms change their structure, so they become more akin to barristers’ Chambers?”