Possible tax hikes for LLPs in Budget may ‘distort’ the market and push firms overseas

Despite the professional services sector dodging tax hikes on LLPs in last year’s Budget, it remains unclear whether Chancellor John Healey will impose tax changes this time round, but Rosie Harris-Davison writes that experts have warned against any tax burdens on the sector. In the lead-up to last year’s Budget, whispers circulated for weeks that Rachel Reeves was considering taxing LLP firms. However, after sector-wide lobbying against the move, the former Chancellor rolled back the plans .

The LLP model came into force over 25 years ago and is used by many firms across the professional services industry, including law firms, accountancy firms, and some doctors. It is a structure in which members, known as partners, invest their own capital, take on the risk, and, in return, do not pay corporate tax on their profits. Private client tax partner at RSM, Chris Etherington, told City AM that if tax hikes are imposed on LLPs in the upcoming Budget, it “would lead to some competition issues” among firms and disruption to the wider LLP market.

“You’ve got some large law firms which are not set up as LLPs are just general partnerships. If you’re taxing one more, you’re distorting the market slightly,” Etherington said. He added that the move risks the market becoming more disrupted as firms “could just move offshore, frankly.” In terms of the impact of LLP tax hikes on the firms’ equity partners, Etherington said it “will have a similar impact to a rising corporation tax”, but it will be equivalent to income tax hitting their personal taxes, and have “a knock-on effect potentially” for customers, employees, and business investment.

While risking their own capital and not benefiting from the protections available to employees at LLPs, partners already face tax rates close to 50 per cent, meaning they will bear a heavy brunt of any tax on the firms. The professional and business services sector is an economic engine for Britain, and in 2025, it contributed £335bn to the UK economy and is one of the UK’s largest employers. Sean Drury, Head of tax at Blick Rothenberg, told City AM the government “should be wary” of imposing tax on LLPs as the partnership structure “has been effective in attracting professional and financial services organisations to the UK.”

“Similar structures are available elsewhere, so I am unsure that the government is looking for an outcome which would disincentivise organisations to base or invest in the UK where they have other locations for the investment,” Drury said. Budget may have tweaks rather than shocks Alexandra Ueno-Park, partner at Haynes Boone, told City AM that despite nothing being confirmed yet in the upcoming Budget, she expects it to “bring tweaks rather than shocks”, but firms would “be wise to model the potential cost now.”

Back in July, the Supreme Court reignited anxieties over possible tax hikes for LLPs after billionaire and founder of hedge fund, BlueCrest Capital Management, Michael Platt, lost a £200m tax battle with HMRC after the court rejected the firm’s argument that its partners were technically self-employed and therefore not subject to the same income tax and national insurance as normal employees. “After years of upheaval over salaried member rules, Supreme Court litigation and carried interest reforms, professional services need one thing above all: stability.

If change is coming, it should come only after a full and proper consultation,” Ueno-Park said. Sarah Curzon, tax partner at MHA, told City AM any tax changes to the LLP model “could have significant consequences for the UK professional services sector.” “Professional services is an important UK growth sector and one in which the UK has a strong international position,” Curzon said. “With employment costs having increased and firms also needing to make substantial investment in technology, data and AI, further increases in the tax cost of operating an LLP could add to those pressures.”

Curzon added that if any tax changes “significantly alter the relative tax position of LLPs”, she anticipates that firms will “review whether the LLP remains the most appropriate structure.” Legal sector sounds alarm Last year, the legal sector sounded the alarm over Reeves’ proposal, with industry bodies such as the Law Society demanding “absolute clarity” that the plans had been quashed . Colin Passmore, Chairman of the City of London Law Society (CLLS), echoed the same concerns ahead of this year’s Budget.

“Any return of last year’s proposals to extend national insurance to LLP partners would be both unfair and damaging to growth. LLPs are taxed in the same way as other partnerships, so there is no loophole to close,” Passmore told City AM . Passmore said any changes would “create new distortions rather than correct an existing one.” “Those distortions would push firms to restructure how they pay and organise their partners, or to move work to competing centres such as New York, Singapore and the Gulf,” Passmore said.

“That would undermine one of the UK’s most successful exports at precisely the moment the government is looking to the private sector for growth. We fully support a fair tax system, which is why a change of this significance should only follow proper consultation with the profession,” he added. When approached for a comment, a Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”