The Autumn Budget 2025  Limited Liability Partnerships

She looked at ease waving the flag for Britain on a global stage. However, there was a tough message at the core of the international diplomacy – wealthy taxpayers are very welcome in Britain, but they will have to pay more in tax after the Autumn Budget, on 26 November.

She said: “I want Britain to be a great place for talent. I want the UK to remain an attractive place, but we’ve got to get the balance right and I do think that if Britain is your home, you should pay your taxes here.”

Reeves has long believed that those with the broadest shoulders should carry more of the financial burden by paying more into Treasury coffers in taxation. We didn’t have to wait long to see precisely whose shoulders she would seek to load up.

The Times reported on 21 October that Reeves will launch a ‘£2 billion tax raid on lawyers, family doctors and accountants’ as she seeks to plug a potential £20-50bn hole in the public finances.

The Chancellor is expected to use her forthcoming Autumn Budget to impose a new charge on people who use limited liability partnerships (LLPs).

Limited Appeal

More than 190,000 people work in an LLP, a structure that is very popular among lawyers. In an LLP, the partners pay income tax on earnings, which is considerably higher than corporation tax, and are also not entitled to capital allowances or other corporate tax reliefs. As they are considered self-employed so do not pay any employer’s National Insurance – it would otherwise be levied at 15% on their income. Reeves is said to believe this is unfair and is expected to impose a slightly lower rate on partners.

The proposed tax change comes from a policy report – Equalising National Insurance on Partnership Income: Revenue and Distributional Effects – published on 4 September by the think-tank, the Centre for the Analysis of Taxation (CenTax). They’ve also been reiterated by the Resolution Foundation in their publication “Call of Duties”

CenTax is a research centre co-hosted by London School of Economics and the University of Warwick, led by Andy Summers and Arun Advani (Warwick).

Figures from CenTax show that solicitors receive a fifth of all partnership income, averaging more than £300,000 each in partnership profits annually. The average is £118,000 a year for GPs, and £246,000 for accountants.

They escaped Reeves’s last change to employer NICs, which were raised to 15% from April 2025. Her attempt to widen the tax net could mean much higher tax contributions from the small and medium sized law firm up to big City players like Linklaters, Clifford Chance, A&O Shearman and Freshfields – aka the ‘magic circle’.

It has been reported that partners at these ‘magic circle’ firms face paying at least £250m more in tax.

Professor Advani from CenTax said: “Since partnership income is hugely concentrated, with almost half going to those in the top 0.1 per cent, exempting partners from any equivalent to employer NICs is very regressive and simply means higher taxes for everyone else. There is no reason why partners should pay less tax than similarly highly paid staff and business owners.”

The proposal would also affect doctors working in private practice in LLPs but it is thought not all doctors in partnerships would be affected.

Reeves is reportedly trying to find a way to shield NHS GPs from a higher tax bill by applying the changes only to LLPs, which are not the type of partnership typically used by those providing care for NHS patients.

However, GP locums, who are often self-employed, could be affected if they are part of, or have formed, a locum chamber LLP.

The British Medical Association, the trade union for doctors and medical students, warned that applying a 15% employer NIC rate would lead to higher costs, which would be passed on to patients and may discourage doctors from entering private practice.

Dan Neidle, a former Clifford Chance tax chief and founder of Tax Policy Associates, argued that introducing changes to LLPs and not to all partnerships would be unfair.

“It is unfair – I don’t see why a GP earning £180,000 should pay less tax than an accountant earning £180,000,” he said.

Legal Eagles

Neidle has analysed how the Chancellor’s proposal would hit top-earners.

According to early calculations, the average solicitor partner earning £316,000 could pay around £23,000 extra each year, while a magic circle equity partner at Freshfields, earning around £2.3m, could see an additional £170,000 tax bill.

Neidle said: “A partner earning £2m currently takes home £1,072k. If employer NICs applied, she’d take home £934k – meaning £138k more tax. Her effective tax rate has gone up from 46% to 53% and her marginal tax rate is now 54% This puts our £2m partner in the same position as (say) a trader at a bank where their salary and bonus pot are together £2m. Previously she paid less tax; now she pays the same.”

Change of Status

The plan to limit the tax grab to LLPs and not including traditional partnerships was criticised as ‘illogical’, with some in the legal sector predicting that firms would just change their status to avoid it.

Neidle noted that one of the UK’s most profitable firms is structured as a traditional partnership and would be untouched by the tax change.

“If you change the rules for LLPs and not partnerships then the wealthiest law firm in the country escapes the tax,” he said. “All the others will try to find ways to change what they do. It’s a bad idea to tax two very similar things in a very different way.”

The main difference between a LLP and a traditional partnership is that a traditional partnership is not a separate legal entity and partners have unlimited liability, while a LLP is a separate legal entity with limited liability for its members. LLPs require registration with Companies House, have more public disclosure requirements, and tax profits via individual members, while traditional partnerships are not required to register with Companies House and partners pay tax on their share of profits.

Stunted Growth

The proposed tax grab has sparked debate about whether it would just drive out talent to other countries and raised questions about how it fits with the government’s economic growth agenda.

David McNeill, director of public affairs at the Law Society, said the tax change seemed to be at odds with the government’s number one goal of jumpstarting economic growth.

He said: “Imposing a new tax on limited liability partnerships could be a big hit on the legal profession, a sector which the government is depending on as part of its growth strategy. Law partnerships don’t get the same tax breaks for investment as other businesses but are now having to pay the same levels of tax. On top of that, law firms are facing the risk of new regulation costs and bureaucracy. This makes no logical sense as a joined-up growth strategy.”

Neidle predicted a potential exodus of high-earners to more generous tax regimes, adding: “Large law firms practise all over the world. In many cases it’s possible to do much the [same] work in Dubai as in London. So (at the margins) we will see some members of these firms move from London to Dubai to escape the tax. And not just Dubai – for various reasons, lawyers in many European countries pay lower tax than lawyers in the UK.”

Conclusion

Reeves has a thankless high wire act to perform at the forthcoming Autumn Budget. She doesn’t like the ‘unfair’ tax treatment of different businesses – depending on their company status – and wants to close a loophole.

However, the Chancellor has to also tread carefully. The professional services industry, which comprises lawyers, accountants and finance professionals, has been a powerhouse for the British economy for many decades.

Broad shoulders or not – she will not want to kill the goose that laid the golden egg with an additional tax burden.

Listen to the latest Director Podcast, ‘The Autumn Budget 2025: tax choices & challenges’, with Dan Neidle and Anna Leach here.