If you’re a partner in an LLP (whether you’re in law, accountancy, or private medicine) there’s a proposal circulating that deserves your attention ahead of the upcoming budget announcement.
A think tank’s recommendations on partnership taxation have been making waves in the media lately, and whilst nothing’s confirmed yet, it’s worth understanding what might be heading your way.
What’s the story?
The Centre for the Analysis of Taxation (CenTax) has published a policy document that’s caught the eye of national and international newspapers. Their report explores what would happen if partnerships had to pay employer National Insurance contributions (something that currently doesn’t apply to LLP structures).
The discussion around these changes stems from a broader question about tax fairness: should partnership profits be treated differently from employment income when it comes to National Insurance? Currently, LLP partners don’t pay employer NI contributions, which some argue creates an uneven playing field.
Right now, there’s no need to panic or take immediate action. But if you’re a partner in an LLP, staying informed about these proposals makes good sense.
What changes are on the table?
The report (titled “Equalising National Insurance on Partnership Income: Revenue and Distributional Effects“) looks at introducing employer-equivalent National Insurance contributions (Class 1 Secondary NICs) on partnership profits.
Using detailed HMRC data from 2020, CenTax has crunched the numbers to show what this could mean for revenue and who would be affected.
The numbers behind the headlines
Here’s what the research reveals:
The revenue impact If these ‘Partnership NICs’ were introduced, they’d generate around £1.9 billion in 2026–27. Because Partnership NICs would come from pre-tax profits, additional rate taxpayers could see their marginal rate increase by 6.9 percentage points, depending on how any legislation is structured.
Who earns what Partnership income is notably concentrated at the top. In 2020, the top 0.1% of UK taxpayers by total income took home 46% of all partnership income (compared to less than 5% of all employment income).
Your sector in focus Solicitors accounted for one-fifth of all partnership income, with average annual partnership profits exceeding £300,000. In parts of the finance sector, average partnership income tops £600,000.
Who would actually pay? Here’s an important detail: 98% of the revenue would come from individuals in the top income bracket. The report suggests that 66% of current partners wouldn’t pay additional tax under the proposed reforms, though this exemption would likely apply mainly to lower-earning partners.
The economic argument CenTax argues that aligning the National Insurance treatment of partnership income with employment income would reduce distortions in the economy and support growth. Any revenue raised could then be reinvested into cutting other taxes or funding public services.
What this means in practice
To put this into perspective: if you’re an additional rate taxpayer, the proposed 6.9 percentage point increase in your marginal rate would apply to your partnership profits.
For higher-earning partners in sectors like law and finance, this could represent a significant increase in your annual tax liability. The actual impact would depend on your total partnership profits, how any legislation is structured, and your individual tax circumstances.
What should you do now?
These proposals come from an independent think tank, not the government. However, the media attention they’re receiving suggests they could well influence policy discussions as we approach the budget.
For now, the best approach is to stay informed and keep an eye on developments. If changes do materialise, you’ll want to understand how they might affect your partnership’s finances and your personal tax position.
Want to stay ahead of the budget changes?
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