UK Chancellor of the Exchequer Rachel Reeves has ditched the plan of increasing national insurance contributions for partners at law and accountancy firms in the upcoming Budget, reported Financial Times, citing people familiar with the fiscal planning discussions.
The move to introduce higher national insurance contributions from limited liability partnerships had been anticipated to generate £2bn, but the plan has reportedly been abandoned following Treasury analysis.
Treasury modelling indicated that the proposed policy could result in higher costs than benefits due to tax avoidance.
Most large law and accountancy firms operate as limited liability partnerships (LLPs) in the UK. This arrangement provides them with advantageous tax treatment despite gaining high margins.
The decision comes as Chancellor Reeves and Prime Minister Sir Keir Starmer have also scrapped a proposal to raise income tax rates, after the Office for Budget Responsibility reported an improved fiscal outlook.
The expected fiscal gap, previously up to £30bn, is now closer to £20bn.
According to the Centre for the Analysis of Taxation, the addition of national insurance contributions to the tax bills of professionals such as lawyers, accountants who operate through LLPs would have impacted 200,000 individuals and raised £1.9bn in annual revenue.
The measure would have increased the tax rate for partners by almost 7%, bringing it to approximately 55 per cent, although a lower rate had been under consideration.
In recent weeks, lawyers, the Big Four accountancy groups, and private equity executives have lobbied strongly against the possible introduction of national insurance contributions for LLP partners.
During meetings with ministers, firms and trade bodies warned that LLPs might be compelled to restructure as general partnerships or incorporated companies, or relocate more UK partners to overseas entities to avoid the tax.
Firms also argued that any additional tax burden would likely be passed on to clients through higher fees.
“NI contribution hike for LLP partners to be ruled out in UK Budget” was originally created and published by The Accountant, a GlobalData owned brand.
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