Law firms operating as LLPs could be caught in a planned crackdown on avoidance of national insurance payments.
In last week’s budget, chancellor George Osborne announced plans to consult on ‘removing the presumption of self-employment’ from limited liability partnerships.
The budget document stated that ‘misuse’ of partnership rules has been a feature of many avoidance schemes closed down in recent years. Osborne’s target is the artificial allocation of profits to employees who are treated as partners to achieve a tax advantage.
Currently 1,529 law firms are classed as LLPs.
James Hutchinson, partner at London firm Beale and Company, said: ‘The measures appear aimed at catching those businesses where even junior employees are made members of an LLP to avoid national insurance.
‘However, there is a risk that the rules could affect fixed share partners who are currently classed as self-employed. LLPs will need to review their LLP agreements to ensure that such members do not get taxed as employees or become subject to statutory employment rights.’
George Bull, chair of the professional practices group at accountant Baker Tilly, said the budget was a strong signal the government would not tolerate using LLP structures to avoid tax.
‘Firms with fixed-profit share partners may be at risk if these individuals do not have some genuine partner attributes,’ added Bull.
In other budget announcements, the Ministry of Justice is to cut a further £142m after Osborne confirmed most departments must reduce spending by 2% before the next general election.