There are apparently well-sourced rumours that the Chancellor is planning to raise billions of pounds from accountants and lawyers who are part of ‘limited liability partnerships’.
I work at a partnership so what tax advantages might I be about to lose?
Tanya Jefferies, of This is Money, replies: The Chancellor is thought to be considering a £2billion raid on professionals like lawyers, accountants and GPs who work in companies which are structured as limited liability partnerships.
Partners aren’t classed as employees, and therefore the firm does not pay employer’s National Insurance.
We asked a financial planner with clients who could be affected by the changes to explain what might happen and how to plan ahead.
He warns against acting hastily or making big decisions based on rumour alone.
Ian Cook: Partners are not classed as employees, so the firm doesn’t have to pay employer National Insurance on their profit share
Ian Cook, chartered financial planner at Quilter Cheviot, replies: There are strong signals ahead of the Budget that the Chancellor wants to raise revenue by changing how partners in Limited Liability Partnerships are taxed.
Under the current rules, LLP partners are not classed as employees, so the firm doesn’t have to pay employer National Insurance on their profit share.
For high-earning professionals such as lawyers and accountants that means higher take-home pay compared to someone on PAYE earning the same amount.
Rachel Reeves reportedly wants to address this at the upcoming Budget.
What are the current rules
LLP partners do pay National Insurance, but they pay it like the self-employed. That means they pay the smaller personal NI charge on their profit share.
They pay ‘Class 2’ contributions of £3.50 if they have annual profits over £12,570 per year. And they pay ‘Class 4’ contributions if their profits are over that level at a rate of 6 per cent on profits between £12,570 and £50,270, and 2 per cent on any above that. The current rates can be found on Gov.uk here.
However, crucially, no employer NI is due at all, because partners are not employees.
To give a simple example: if an employee earns £150,000, the employer has to hand over £21,750 in NICs to HMRC.
A partner taking a £150,000 share of the profit keeps the whole amount in their taxable income, and after income tax and self-employed NI can end up better off. It’s that absence of employer NI on partner profits that is at the heart of the proposed reform.
How might the Chancellor change the rules
If employer-style National Insurance is applied to partnership profits, some partners could see a meaningful drop in net income, particularly those earning at the top end of their firms.
Even so, the details remain uncertain. Designing rules that are fair and avoid new loopholes is notoriously tricky, and there’s still debate about exactly where the line should be drawn.
In situations like this, it’s important not to jump to big decisions based on rumour alone.
Last year, many people rushed to take their pension tax-free lump sum early because of Budget speculation but the rules didn’t change, and lots of those people now regret making irreversible moves without full information.
There may be sensible planning options available once the picture is clear, for example, reviewing income structure or increasing pension contributions as part of a broader financial plan but those steps should follow certainty, not anticipation.
For now, the best approach is to stay informed and consider the potential impact, but avoid making wholesale changes before the Chancellor confirms the details.
If changes do come in, the best position to be in is one where you’ve already modelled the impact and considered your options, not one where you’ve acted hastily.
Work with your partnership to understand the potential financial effect, check whether the existing structure remains suitable for you, and ensure you have scope to adapt when concrete details emerge.
Your accountant will be primed to advise if you should change the structure of your business to a limited company for example.
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