Budget Talks Put LLP Partner Tax Treatment in Focus
Budget-linked discussions have raised the prospect of higher tax costs for equity partners at large City law firms.
• The UK government has announced plans to impose an employer-style National Insurance Contribution (NIC) on members of limited liability partnerships (LLPs), marking a significant shift in the taxation of professional partnerships. • The proposal is aimed at high-earning partners in law firms and other professional services who’re currently treated as self-employed for NIC purposes. • Ministers say the change is intended to reduce the disparity between the tax treatment of LLP partners and salaried employees performing comparable roles within the same organisations. • Treasury estimates suggest the measure could raise close to £2bn per year in additional revenue.
• If implemented, partner take-home pay would fall noticeably, with the impact most pronounced at large city firms where profit shares are highest. • The proposal would increase the tax cost of distributing profits to equity partners by reducing the NIC advantage currently associated with LLP structures. • Increased cost pressure may be passed on to clients, particularly in high-margin practice areas.
- HM Treasury, Budget Policy Customs
- BDO LLP, ‘NIC on partnership profits’ https://www.bdo.co.uk/en-gb/insights/tax/partnership-tax/nic-on-partnership-profits accessed 25 October
- Travers Smith LLP, ‘Possible introduction of “partnership NICs”: what it would mean for private capital mergers https://www.traverssmith.com/knowledge/knowledge-container/possible-introduction-of-partnership-nics-what-it-would-mean-for-private-capital-managers/ accessed 26 October
- The Guardian,’How might Rachel Reeves target lawyers, accountants and doctors in her budget’ https://www.theguardian.com/uk-news/2025/oct/23/how-might-rachel-reeves-target-lawyers-accountants-and-doctors-in-her-budget