Press release featured in: The Times, Law360, Tax Notes, CityAM
Law firms’ partners could face an additional £1.4bn in tax each year if the 15% rate of employer’s National Insurance Contributions (NICs) were applied to partnerships.*
Data provided by HMRC shows that partners of law firms made a total of £9.2 billion in profits in the latest year for which data is available for. That equates to profits of £307,000 on average for the approximately 30,000 law firm partners in the UK.
There is growing speculation that the Government could increase NICs for partners of LLPs to the level of normal employees. At present employers NIC is charged at 15% of income.
Applying a 15% employer’s NICs rate would create an additional tax liability of around £46,000 per partner each year.
Neela Chauhan, partner in our London office, says: “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 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.”
The current regime recognises that LLP partners do not have the employment protections of an employee and that LLP partners are genuine business owners as they have to contribute towards the capital of the business.
Neela Chahuan says: “The current system exists because law firms’ partners shoulder the risks of running the business without enjoying the safety nets that staff do.”
*Tax year 2022/23, most recent year for which data is available. Covers self-employed partners. Source: FOI to HMRC.
