The legal industry has slammed Chancellor Rachel Reeves’ proposed tax hike on LLPs, saying the move “could harm one of the UK’s most globally competitive sectors.”
As she aims to fill the fiscal black hole, Reeves is reportedly targeting limited liability partnerships (LLPs) for a tax raid for the first time. The LLP model, used by professional services such as law firms, accountancy, and some GPs, does not pay corporate tax on its profits and partner income is not subject to National Insurance tax.
The Law Society, which represents over 200,000 lawyers, has urged the Treasury to rule out “damaging tax hikes” on LLPs, claiming it would “undermine the growth agenda the government is working to deliver.”
Law Society vice president, Brett Dixon, stated, “The legal sector is already contending with major regulatory changes in anti-money laundering and compliance, as well as significant pressure from HMRC’s evolving approach to tax advisor regulation.”
“Adding further burdens now risks creating a perfect storm that limits firms’ ability to invest, hire, and contribute to growth, which could prove damaging to the wider economy,” he added.
The body stressed that the UK legal sector is “a global powerhouse” that connects every part of the economy, from the High Street and regions to the City.
It is worth almost £60bn, employing more than half a million people, and data shows that over 2023, the British sector exported more than £9bn in services globally.
Dixon warned: “Legal services are vital to the UK’s economic success, but the government’s commitment to legal services as a driver of economic growth in its Industrial Strategy would be undermined if it chooses this path.”
The Law Society also pointed out that the move to tax LLPs will give US law firms an unfair advantage over UK LLPs as a result of the change in tax rules.
City body written to Treasury
The City of London Law Society revealed today that it has written to the Chancellor to express concern over reports on an LLP tax, echoing the Law Society’s concerns.
Colin Passmore, chair of the City of London Law Society, said: “We fully understand and support the government’s objective of ensuring that everyone pays their fair share of tax.”
“Our concern is that these particular proposals appear to have been developed without sufficient consultation or clarity as to their scope and risk undermining one of the UK’s most successful exports: English law,” he added.
Passmore also highlighted that English law “is a high-growth, high-value sector that underpins the UK’s global reputation for the rule of law.”
These statements come after Reeves’ pre-Budget speech on Tuesday morning, where she refused to rule out such tax rises ahead of the Autumn Budget on 26 November.