It has been widely reported that the chancellor of the exchequer is mulling changes to the tax system which would levy a new charge on LLPs, addressing and removing the anomaly that sees self-employed people within LLPs not having to pay National Insurance contributions.
Within the legal profession, where a good number of firms are LLPs, there have been mumblings and grumblings about the Law Society’s failure to provide a vigorous defence of their members’ tax interests. In my assessment any perceived failure is due to a simple fact: the current system is indefensible. Removing this longstanding NI anomaly is a logical next step from changes introduced to dividends in 2024. The changes - which are not confirmed but day by day seem likelier than not to be introduced at the budget on 26 November - will make the unfair fairer.
What the changes will also do, without doubt, is impact the stability of the partnership structure on the whole. In professional services firms, this structure is already under pressure - due to the economic downturn, yes, but not only this. Partnership is coming to individuals within these firms later than it did before - in their 40s not 30s - while greater numbers of senior partners are hanging on at the top than before. This, inevitably, creates a crowded top table where experiences of the meal served vary too much for some appetites. Succession is, paradoxically, ever-present and yet seldom discussed.
The conventional view is to segregate the two things: new tax on one side and succession on the other. For astute advisers to crunch the numbers and leave the operational concerns to others.
This understanding is superficial at best. Appreciation of the interplay between the two is critical to meeting the moment. In doing so and recognising, for example, how a tax burden might be shared across a firm so that, in the words of chancellor Rachel Reeves 'those with the broadest shoulders…pay their fair share', one can unlock the tensions between senior and junior partners and make stable what has begun to waver.
At Flask Hill Advisory we understand succession planning. Though we don’t call it that. We call it success planning. I am one of four founders of this business alongside Louise Jacobs, Ramona Mehta and Sam Clarke. Between us and borne out of our experience inside and outside of professional services firms, we have developed strategies for businesses and individuals to manage the evolution of careers. We work with both to unlock potential and to make the transition from partnership to consultancy and beyond fulfilling and worthwhile for both sides.
I say forget the arithmetic. What these proposed tax changes do is make urgent what is nonetheless already present in all of these firms - a need to take proactive steps to 1) meet the expectations of their junior people, the future of every business, and 2) navigate and shepherd the post-career stage of their most senior members.
Anthony Julius is founder of Flask Hill Advisory and deputy chairman of Mishcon de Reya LLP. He wishes to make it clear he is neither an accountant nor a tax adviser
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