The Autumn Budget is a matter of weeks away and speculation continues to grow around what could be announced on 26 November by Chancellor Rachel Reeves.
There is growing noise around the Chancellor potentially introducing a new National Insurance charge on partnerships.
What changes are under consideration?
It is believed that the Government are looking at different options including the introduction of an employer-style National Insurance charge on partnership profits.
This comes after a recent paper published by the CenTax think-that highlighted what could be done to level up the employer NIC treatment of partners with employees.
Under current laws, partners are classed as self-employed meaning the 15 per cent NIC charge, which took effect in April 2025, does not apply to the earnings they accumulate.
If the change was to be made by the Government and align with the employer rate, it would in effect create a tax rise of an estimated seven per cent for higher rate tax payers earning in partnership once deductions are made.
Should this be introduced, there is uncertainty around whether it would apply to all partnerships or just limited liability partnerships (LLPs).
How would these changes impact partnerships?
Any tax reform is likely to have a profound impact on LLPs, increasing the overall running costs and could see directors of the LLP decide to look the structure and make changes to help them meet compliance requirements and have more flexibility.
In addition to this, some may decide to incorporate and doing this would allow profits to be retained at the Corporation Tax rate of 25 per cent rather than face charges on distribution.
It isn’t just partnerships within the financial services sector that could feel the impact of this potential tax change, with medical and agricultural partnerships also at risk although there is speculation that medical partnerships may be exempt.
Rachel Reeves will clarify her plans in the Autumn Budget, that will outline if indeed partnerships’ NICs will be introduced.
How should I prepare in the meantime?
It’s a difficult one especially with speculation mounting and while it isn’t clear if this will be introduced, it is not being denied by the Treasury.
With the Budget fast approaching, all partnerships need to prepare for all eventualities and starts with analysing their current structure.
Prepare for every eventuality by speaking with our team who can advise and support your partnership.
