UK Lawyers and Accountants Sound Alarm Over Partnership Tax Raid Fears
The UK’s legal and accounting sectors are warning Chancellor Rachel Reeves against rumoured plans to increase taxes on partnerships, arguing it could harm investment, drive professionals abroad, and weaken the economy.
As speculation grows that Labour may target professional services firms in upcoming fiscal reforms, industry leaders caution that higher taxes on partnerships—widely used by law and accounting firms—could backfire by reducing competitiveness and growth.
Why Are Partnerships Under Scrutiny?
Partnerships, especially limited liability partnerships (LLPs), are a preferred structure for legal and accounting firms due to tax efficiency and flexibility. Unlike corporations, partnerships are taxed as transparent entities, with profits flowing directly to partners who pay income tax—avoiding double taxation.
Reports suggest the Treasury may target perceived “imbalances” by:
– Increasing National Insurance Contributions (NICs) for self-employed partners.
– Limiting profit-sharing arrangements that reduce tax liabilities.
Industry Backlash: “A Threat to UK Competitiveness”
Legal and accounting leaders argue the changes could stifle entrepreneurship and push high earners overseas.
Emma Reynolds, Partner at a Top 50 UK Law Firm, said:
“The partnership model fuels investment in talent and infrastructure. Tax hikes could force firms to cut hiring, scale back training, or relocate—eroding the UK’s edge in global legal and financial services.”
Sanjay Mehta, Head of Tax at a Big Four Firm, added:
“This risks a brain drain to low-tax hubs like Dubai. The Treasury must weigh long-term economic impacts, not just short-term revenue.”
Economic Risks: Investment, Jobs, and Revenue
The UK’s professional services sector contributes £260 billion annually and employs over 2 million people. Policy missteps could trigger:
– Declining foreign investment – Global firms may favour rival hubs.
– Lower long-term tax receipts – Talent flight or downsizing could shrink the tax base.
– Pressure on mid-sized firms – Smaller partnerships may struggle, risking consolidation and job losses.
Alternative Solutions for the Treasury
Instead of penalising partnerships, experts suggest:
– Targeting abusive tax avoidance, not legitimate structures.
– Expanding incentives like R&D credits for professional services.
– Broadening the tax base without rate hikes on key sectors.
Will Reeves Rethink the Plan?
Rachel Reeves faces pressure to fund Labour’s agenda without excessive borrowing. Opposition from a critical economic sector may force a compromise.
With the Autumn Budget approaching, the government must decide: pursue a contentious tax raid or seek a balanced solution. Either way, the industry is gearing up for a fight.
Next Steps: Lobbying and Legislation
The Law Society and ICAEW are preparing lobbying campaigns to block punitive measures. If rumours prove true, a heated debate over UK competitiveness awaits.
— Reporting by NextMinuteNews Finance Desk
