Tax on Banks ... what about Solicitors, GPs, Accountants not paying any NI on partners' salaries?

[ByQuaintAzureWasp]

Why are some of our biggest earners, being paid through LLPs, being allowed to avoid paying around 23/25% NI?

This could contribute massively to public finances.

And they are thinking of charging pensioners NI?

Here’s an idea - why don’t they reduce spending instead? Then they won’t need to keep increasing everyone’s taxes. It might be doctors, lawyers and accountants this time - but if they don’t stop wasting money then it will continue.

How can they say they are investing in the economy when they are reducing the amount of money people have to spend by taxing them so much?

It might raise £2 billion in revenue - HM Government spends over £100 billion just servicing national debt.

What we need is a chancellor and government who know what they are doing and are prepared to make some hard choices, we cannot keep taking from the productive sector of the economy indefinitely to give to the non-productive sector.

Your premise is wrong.
They do pay National Insurance.

They pay a fixed amount (Class 2) and an income/profits related amount (Class 4).

Class 4 contributions.
For tax year 2025 to 2026 you’ll pay:

• 6% on profits over £12,570 up to £50,270
• 2% on profits over £50,270

By comparison, class 1 (employed) NIC is 8% on earnings between the primary threshold and the upper earnings limit, plus 2% on earnings above the upper earnings limit.

It’s a really bad idea which is unfair and the consequences will be huge for LLPs.
many of these people invest huge sums of their own money, employ many staff, paying the employers ni for their work force. Cash flow can be tight and they cannot take much out of the business the themselves. It’s no different from any other self employed person, why charge LLP members but not, say a self employed tradesman (who may be better at tax avoidance)?

GPs cannot uphold an NHS contract in an LLP in England and Wales ( I believe they can in Scotland). Most GPs are in a traditional partnership.

And they do pay National Insurance, albeit at a slightly lower rate.

All that will happen is businesses that have traditionally operated through an LLP will become limited companies - and pay no National Insurance on their dividends.

There is already a lot of anti-avoidance around the taxation of LLPs, the use of corporate partners etc.

nce.

I’m not saying there’s no argument for it to be looked at. But they just have a different set tax of tax rules, and it seems unfair to take away one slight tax advantage while keeping other disadvantages, for example tax reliefs that they are not able to access that ltd companies can.

Also, like the general across the board employer NI rises, this would be another example of Reeves technically sticking to “no tax rises for income tax, employee NI, VAT” while not really sticking to the general premise of “no tax rises for working people”, and its affecting the salaries of all the people who work in law firms, accountancy firms etc that are not highly paid partners.

LLP partners (1) have to pay capital into the business which is tied up until they retire, (2) are classed as self-employed and therefore don’t get any employment benefits such as paid holiday, sick pay, employer pension contributions. The trade off is they pay a lower class of NI. This proposal is totally misguided and, as others have said, many LLPs will probably restructure.

The partners I know have around £250,000 of their money invested in their firm (paid for by interest-bearing loans they have to service). If they have a bad year they still pay employees wages so may not take home much at all. If they fail to bring in enough business and it goes bust they lose the £250,000 investment. They are not big firms. There has to be some recognition of risk they are taking to run the business - they don’t have employment protections.

Partners in an LLP aren't employees though. They don't have employment rights such as sick and maternity pay, or protection from unfair dismissal. How can HMRC justify taxing people who take on this level of personal risk on the same basis as those who are employees with all the benefits that come with an employment relationship? The partners are running a business and taking the risk associated with doing so. For context, I'm a solicitor, but not a partner in a lawfirm. I have many friends who only took 6 weeks mat leave as they couldn't afford to not have the fee income for longer.

GPs cannot uphold an NHS contract in an LLP in England and Wales ( I believe they can in Scotland).

I wonder if the SNP will pick this up - a tax on Scottish GPs not payable by English ones!

And if your partners decide to vote one of the partners out they will escort them out of the building then and there - no notice period or redundancy needed.

I think it’s been made clear that it isn’t that NICs aren’t paid, just paid at a lower rate to recognise the risks associated with being a partner. It’s easy to think the people who will be impacted are all earning huge amounts so won’t be impacted, but that just isn’t true and the knock on impacts would be massively damaging to professional firms, which as an industry contribute a huge amount to the UK economy.
Whilst some partners in some of these businesses earn huge amounts the reality is the bulk are smaller firms where partners will be earning relatively modestly and have material capital at risk plus employing large numbers of other people.
I spoke to a client yesterday who said if the changes went through it would cost his firm alone over half a million a year in basic costs with 100s of people possibly changing status and they haven’t even started to think how they would fund the capital withdrawal. It’s very badly thought through and would be catastrophic for the legal sector.

Self employed (including partners) pay a lower rate of NIC because they get less benefit entitlement than employed people. If people want them to pay the same as employed workers, then it will cost the country a small fortune in numerous different benefit entitlements for when they're ill, pregnant, unemployed, etc.

I agree that it's not right that such people are taxed the same as employees with far greater rights, but it's what they've already done with IR35 on personal service companies, many of whom were used by all kinds of freelancers and self employed, including locum doctors and GPs, as well as IT consultants, etc., and it completely wrecked the "freelancer" marketplace. Now it seems incompetent Reeves wants to expand that damage to professional firms too! She's absolutely hopeless and clueless.

Exactly this. The NIC position in an LLP is actually worse than a shareholder in a company, and generally worse for income tax too in professional services.

So the natural response to this will be incorporate, or to restrict the pay rises and bonuses of lower paid staff (who then in turn will be paying less tax and having less money to fund their lives).

It’s in incredibly ill thought through idea that makes a great headline.

Nail on the head. We'll just have another stampede of businesses converting into limited companies to avoid it. Just like Brown caused around 20+ years ago when he reduced small company corporation tax but didn't reduce income tax/nic for self employed, so literally hundreds of thousands of self employed window cleaners, tradesmen, etc converted into limited companies! At the time, Brown's paymaster general stood in Parliament and said she didn't think self employed would convert to limited companies "just to save tax". Labour are utterly clueless, always have been and always will be.

Traditional partnerships have unlimited liability to the full extent of personal wealth. So, your accountancy practice goes downhill and you lose your house.

This is why LLP were invented - to offer some of the protections of limited liability that companies offer. Not every business owner wants to bet their houses on business success.

LLP will tend to be larger, and employ lots of highly skilled and trained workers.

What will happen is that they will incorporate instead, and LLP will fall into disuse.

Our current government views anyone paid more than (say) a school headteacher as exploitative and immoral / venal. I think that is sad - although I don't deny there are some shysters out there.

I really hope the professional service firms are given a chance to respond to the proposal, as others have said they will incorporate or some may just take their business outside the U.K…. not thought through at all.

Our current government views anyone paid more than (say) a school headteacher as exploitative and immoral / venal.

Not as much as that. Pretty anyone over minimum wage (apart from politicians of course)

If there is any group that can be guaranteed to change their firms status to avoid tax it is accountants and lawyers…