Our corporate team has the technical expertise to advise traditional and limited liability partnerships at all stages of their lifecycle on optimising their structure and governance, typically to mitigate tax risk whilst preserving the positive aspects of a partnership model, and the ethos and culture that underpins the success of their business.
Led by Adrian Seagers, we work closely with our in-house tax experts, or with your own tax advisors if preferred, to ensure that your business is structured in the best way to achieve your goals. Our focus is on finding the right model for you, based on the unique context of your business.
Restructuring a partnership or LLP can have wide-reaching cultural consequences across the business, so the team works seamlessly across departments to bring together skills from tax, banking and finance, and employment to ensure a smooth transition.
Restructuring and incorporation frequently asked questions
What is the potential change to National Insurance for partners or members of LLPs?
Rumours are that the Government has been considering applying an employer-style National Insurance charge to profits allocated to partners in LLPs and possibly general partnerships. This would mirror the Class 1 National Insurance Contributions (NICs) currently paid by employers on employee salaries. If introduced, the change would most likely take effect from April 2026.
How might this affect individual partners financially?
Partners currently pay only Class 4 NICs, at a much lower rate than employers’ NICs. An additional NIC charge could reduce partners’ net income by several percentage points, depending on profit levels. For example, a partner earning £300,000 could see a reduction of over £20,000. The impact will vary depending on a firm’s structure and its current profit-sharing arrangements.
What are the broader implications for firms?
The change may increase the overall cost of partnership remuneration, potentially affecting firm profitability and competitiveness. Smaller and mid-sized firms could be disproportionately affected, as they have less scale to absorb an adverse financial impact. Some firms may consider restructuring the whole or at least parts of their business in response, but the cultural effect of significant structural change will be a key issue for many partners.
Will there be any exemptions or planning opportunities?
If the above change does take place, it is not yet clear whether exemptions or thresholds will apply, but the Government may limit the scope to LLPs only. If so, some firms may consider converting to general partnerships or other structures. Planning opportunities may also arise through adjustments to profit allocation and remuneration models.
What should firms do now to prepare?
Firms should monitor developments closely and look out for further briefings from our team as matters become clearer. Strategic options such as restructuring or incorporation should be evaluated with professional advice, though it is likely any change would only be introduced following consultation.
What are the options available to our business should we wish to move away from our current LLP or general partnership model?
The pre-Budget speculation is that some LLPs or partnerships will strongly consider incorporation. The focus may initially be on the financial advantages of a limited liability company structure, such as retention of profits without a “dry” tax charge on owners, a lower corporation tax rate and possibly a dividend tax rate that will compare favourably with the new regime. How attractive this will be remains to be seen. Issues such as governance and preserving culture will also need to be taken into account, and may prevail if the financial advantages of incorporation are not strong enough.
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