The Chancellor is reportedly considering ending the National Insurance exemption for limited liability partnerships (LLPs) — a move that could affect around 200,000 professionals and raise £1.9 billion. Rathbones’ Senior Financial Planning Director, Olly Cheng, warns that while it may boost revenues, the change risks unfairly burdening LLP partners and could have wider economic repercussions.
Commenting, Olly Cheng, Senior Financial Planning Director at Rathbones, says: “While this move may generate some of the additional revenue the government needs, its motivation is certainly not rooted in creating a fairer tax system. It would impose a further burden on a group that already contributes significantly to the Treasury each year.
“Some of the commentary surrounding partnerships suggests that partners in LLPs are effectively employees and should be taxed accordingly. However, our experience working with clients in partnerships indicates otherwise.
“These individuals typically do not receive a fixed salary – their income fluctuates with profits. They also lack employment benefits such as employer pension contributions. Moreover, the complexity of calculating tax liabilities for partners can result in marginal tax rates that exceed those faced by employees with comparable earnings. The LLP structure exists to provide legal protection, not to avoid National Insurance.
“Although details remain limited, the expectation is that NICs would be levied on partnership profits at the same 15% rate currently applied to companies. Like the increase in employer NICs, this measure would likely have ripple effects across the broader economy.
“City law firms are already grappling with intense competition for talent, driven by the growing presence of US firms in London. To retain top performers, firms may be forced to make difficult decisions elsewhere in their cost structures. We’ve already seen that additional business costs carry consequences, and the proposed changes could further impede economic growth.”
