Should the Chancellor Introduce a £2bn Tax on LLPs?

There has been growing discussion about whether the government should introduce a new tax on limited liability partnerships (LLPs), a move projected to raise as much as £2 billion annually. Many professionals — including doctors, lawyers, accountants, and fund managers — operate through LLP structures, which currently avoid employer national insurance contributions. Some argue that changing this could create a fairer system; others warn it would introduce complexity and unintended consequences.

If you’re a professional affected by these potential tax changes, a qualified financial adviser can help you understand the impact on your pension planning, income structure, and overall protection strategy. Book a meeting with an adviser today to review how upcoming fiscal changes might influence your financial goals.

Understanding the Proposal

Currently, LLP members are treated as self-employed for tax purposes. This means no employer national insurance is applied, resulting in a lower overall tax burden compared to employed professionals. Introducing employer national insurance could help equalise the tax treatment between employees and partners — but it would also reduce take-home pay for many professionals, including those in the medical and legal sectors.

Supporters of the change argue that taxing work equally regardless of structure is fair and consistent. However, critics note that it could penalise small practices and create distortions between different business models.

The Financial Impact

Research suggests that the highest earners would bear the bulk of this new tax. Around 0.1% of taxpayers currently receive almost half of all partnership income, meaning most of the tax increase would affect top-tier professionals in sectors such as law and financial services.

For instance, a partner earning around £300,000 could see their effective tax rate rise from roughly 43% to 50%. For those earning in the seven figures, the change could add over £100,000 in additional annual tax. These are significant shifts that would likely influence how LLPs and partnerships are structured in the future.

If you operate within such a partnership, consulting with an independent financial adviser can help you identify efficient strategies to manage potential increases in fees and tax liabilities. An experienced financial advisor can also assist in reviewing your pension contributions and investment planning under new tax conditions. Book a meeting with an adviser to receive tailored advice for your situation.

Fairness and Complexity

While the policy goal of equalising taxation across employment types may seem logical, the implementation is complicated. Distinguishing between income earned through labour and returns on capital investment would be a challenge. Furthermore, LLPs often include international members, meaning some profits are already taxed abroad.

Some argue that selectively targeting LLPs would be inconsistent, as many partnerships operate under similar principles. Limiting the rule to LLPs could drive firms to reclassify or restructure to avoid the charge, reducing the expected revenue gain. Moreover, smaller professional groups — including GPs and consultants — might see reduced income despite already facing rising operational costs.

Economic and Behavioural Considerations

Introducing this tax could also influence behaviour. Some professionals may switch from partnership structures to self-employment or even relocate overseas to maintain net income levels. Others may choose to incorporate, transforming partners into shareholders. While incorporation might save only a modest amount of tax, it could offer longer-term advantages through retained earnings and reinvestment flexibility.

These behavioural shifts could ultimately affect government revenue, the UK’s competitiveness, and the availability of professional services. Firms might pass some of the cost onto clients, resulting in higher fees for end consumers.

A Balanced Approach

A more balanced solution could involve introducing an exemption threshold for moderate earners — such as medical professionals — while still applying additional tax to the highest earners. Another approach might be to increase certain professional pay rates to offset the tax impact while maintaining revenue targets.

For many professionals, such changes highlight the importance of personalised tax and financial planning. Working with a certified financial adviser ensures your pension and protection plans remain robust against evolving fiscal policies. A top financial advisor can help you navigate regulatory shifts while maximising tax efficiency and ensuring long-term financial security.

Book a meeting with an adviser to discuss how these proposals may affect your business income, pension, and investment strategy.

Conclusion

The potential £2bn LLP tax highlights the ongoing tension between fairness, fiscal responsibility, and economic competitiveness. While it could provide a much-needed boost to government revenues, it risks penalising professionals who have structured their work in ways that reflect long-standing industry norms.

As the UK continues to refine its tax system, understanding the implications for your practice, pension, and financial protection has never been more critical. Seeking advice from a qualified, independent financial adviser is one of the best ways to prepare for whatever changes may lie ahead.

Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom.  Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand.