Partnership advisers urge consultation as concerns grow over proposed LLP tax changes
Partnership advisers have warned that proposed national insurance contributions on limited liability partnership profits would raise less than expected and could have wider economic repercussions.
In a statement issued today, the Association of Partnerships Practitioners, which represents partnership advisers, echoed calls from the Law Society and the City of London Law Society for Chancellor Rachel Reeves to hold a consultation before introducing any new tax on LLP profits.
The intervention comes amid growing speculation about the Treasury’s plans for LLPs, more than two weeks before the 26 November Budget. The Financial Times reported last week that Reeves has ruled out imposing full employer national insurance contributions but is considering a partnership tax at a rate lower than the standard 15 percent. Both law societies have urged the government to consult before making any change.
In its statement, the Association of Partnerships Practitioners said imposing employer national insurance contributions on LLP profits would likely prompt partners to convert their businesses into limited company structures, allowing them to defer tax. The body stated that partners are “radically different from employees in terms of their status and responsibilities and receive few of the legal protections of an employee.”
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The association pointed out that rules dating from 2014 already ensure that LLP members deemed to be disguised employees are taxed as employees.
“Partnerships, including LLPs, are a cornerstone of the UK’s economic architecture,” the association said. “They underpin a wide range of sectors, from legal and accounting services to private equity, asset management, healthcare, farming and consultancy.”
The association added that the LLP model “offers flexibility, limited liability and a platform for entrepreneurial collaboration.”
It warned that “any reform needs to be carefully considered because of the widespread detrimental effect it might have on those sectors and economic growth generally.”
The £1.9 billion estimate for the government’s proposed partnership tax originated in a report published in September by the Centre for the Analysis of Taxation. The report projected that the reform could raise £1.9 billion in 2026 to 2027, with 98 percent of the revenue coming from individuals in the top decile of income earners.
However, the Association of Partnerships Practitioners questioned whether such a yield would be achievable, arguing that the actual revenue would likely be lower than forecast.
The organisation’s warning adds to growing pressure on the Treasury from professional and financial services groups who say that rapid changes to LLP taxation could damage key sectors of the UK economy.
Partnership structures are widely used across the professional services industry, including by major law, accountancy and consultancy firms, as well as in finance, agriculture and healthcare. Advisers fear that an unconsulted reform could undermine business flexibility and discourage investment.
The association said any tax changes should take account of the fundamental differences between partners and employees, noting that LLP members typically bear entrepreneurial risk and do not enjoy the same legal protections as staff.
The body also emphasised the importance of consultation before introducing significant changes to partnership taxation, highlighting the role LLPs play in supporting growth and employment across multiple sectors.
Meanwhile, The Financial Times reported that HM Revenue and Customs is preparing to launch a scheme rewarding individuals who report tax fraud. Under the plan, whistleblowers could receive up to 30 percent of the tax collected as a result of their information.