The professional services sector will breathe a sigh of relief as one of her reported rollbacks includes crossing out plans to target limited liability partnerships (LLPs) for tax.
The LLP model, used by professional services such as law firms, accountancy, and some doctors (GPs), came into force 25 years ago, which does not pay corporate tax on its profits.
However, news broke last month that Rachel Reeves was looking to change that, a move that warten a slurry of anger from the broader professional services industry, including the legal sector.
However, according to the Financial Times, Reeves is now reconsidering a levy on LLPs, in addition to backing away from income tax hikes and the controversial ‘exit tax’ policy.
The “speculation about a proposed LLP tax has been damaging for business confidence,” stated Mark Evans, president of the Law Society of England and Wales. He said the Chancellor “should make it absolutely clear that the LLP tax is off the table”.
James Kipping, head of private client tax at MHA, stated, “Major professional services firms have two major areas of expense: people and technology.”
He pointed out, if the Chancellor proceeded with this move, it “could well have been the death of the LLP”, adding, “in the UK and would inevitably have led to more consolidation in the legal and accounting market.”
Colin Passmore Chairman of the City of London Law Society, stated: “If the reports are correct, we would be very pleased that the government has listened to the concerns we and others have raised.“
Evans said leaders from across the professional services sector came together on Thursday to write to Reeves “to warn against such a measure and how damaging it would be for the UK economy”.
The sector warned against the move, given that professional services partnerships are the cornerstone of the UK economy. The total tax contribution of the financial and related professional services industry was £110.2bn in 2023, while employment taxes for the financial and related professional services industry alone totalled £55.1bn.