The City of London Law Society has written to the chancellor urging her not to reform LLP member tax arrangements in this month’s budget.
In a letter to Rachel Reeves, the CLLS said the introduction of National Insurance contributions for partners could have unintended consequences for the legal sector.
Colin Passmore, former senior partner at Simmons & Simmons and chair of the Society, said: ‘We fully understand and support the government’s objective of ensuring that everyone pays their fair share of tax. Our concern is that these particular proposals appear to have been developed without sufficient consultation or clarity as to their scope and risk undermining one of the UK’s most successful exports: English law.
‘The CLLS and its member firms stand ready to work constructively with HM Treasury to explore any perceived imbalances, but we strongly urge a period of reflection and engagement before such measures are introduced.’
In the letter, the CLLS outlines a series of concerns, including the potential economic and competitive impacts of a new NIC charge, the risk of uneven treatment across business structures, and misunderstandings about the nature of the LLP model - ‘not least that it does not provide any sort of tax break as some reporting has wrongly suggested’.
LLP partners are treated as self-employed, which offers tax advantages compared to employees, notably a lower National Insurance payment on some profits and no employer’s NI.
The Society also highlights the wider consequences for the City’s position as a pre-eminent global legal centre for the government’s growth agenda. Passmore added: ’The UK’s legal services sector contributes more than £57 billion in gross value added, supports over half a million jobs, and generates substantial tax receipts. It is a high-growth, high-value sector that underpins the UK’s global reputation for the rule of law. We would welcome the opportunity to discuss these issues directly with the chancellor and her officials.’
The Law Society of England and Wales is also urging Reeves to rethink.
Vice president Brett Dixon said today: ’The chancellor must rule out a tax hike against LLPs which could harm one of the UK’s most globally competitive sectors and undermine the [government’s] growth agenda.
’The legal sector is already contending with major regulatory changes in anti-money laundering and compliance, as well as significant pressure from HMRC’s evolving approach to tax advisor regulation. Adding further burdens now risks creating a perfect storm that limits firms’ ability to invest, hire, and contribute to growth, which could prove damaging to the wider economy.
“There will also likely be an impact on legal aid firms, a significant portion of which are structured as LLPs. Often operating with tight margins, this could be a heavy blow to those firms and have a real impact on the availability of legal aid across the country, putting further pressure on public services.”
US law firms could also be given an unfair advantage over UK LLPs as a result of the change in tax rules, the Law Society warns.
11 Readers' comments