With the November Budget just weeks away, one rumour appears to be gaining more traction than others.
Media reports suggest that the Chancellor, Rachel Reeves, may introduce a new National Insurance charge on partnerships in her Budget announcement.
What is being considered?
It is understood that the Government is exploring the idea of applying an employer-style National Insurance charge to partnership profits.
This follows a paper published by the CenTax think-tank, which recommended the Government equalise the employer NIC treatment of partners with employees.
Currently, partners are treated as self-employed, so the 15 per cent NIC charge, introduced in April 2025, does not apply to their earnings.
If the change mirrors the employer rate, it could amount to an effective tax rise of about seven per cent for higher rate taxpayers in a partnership once deductibility is taken into account.
It is not yet known whether the charge would apply only to limited liability partnerships (LLPs) or to all partnerships.
What are the possible implications?
LLPs are widely used across professional and private capital sectors. Any additional charge would increase costs and may encourage firms to reconsider their structures.
Some may look at incorporating, allowing profits to be retained at the 25 per cent Corporation Tax rate rather than being taxed on distribution.
Others may restructure internally to balance compliance and flexibility.
Partnerships outside financial services, including medical and agricultural practices, could also be affected.
However, there are further rumours that suggest Rachel Reeves could introduce an exemption for medical professionals.
A full consultation would be expected to help firms prepare, so if partnership NICs are introduced, it is unlikely to start before April 2026.
What should you do?
There has been no formal confirmation of the possible change, but Treasury officials have not denied the reports.
Given the potential impact, partnerships should review their current structure and model possible outcomes ahead of the Budget.
Contact us to prepare your firm for the best possible response if new charges are confirmed.
