Shame on PM for ignoring.lawyers' £4bn tax loophole

While most major employers were gnashing their teeth at the increase in their national insurance in the Budget, one group was celebrating.

- CHRIS BLACKHURST

Against expectations, limited liability partnerships (LLPs) were let off scot-free.

Many law, accountancy, architects and private equity firms structure themselves in this way. Their members are treated as self-employed for NI purposes and so they pay the lower Class 4 rate – despite often earning large salaries. It was thought that Rachel Reeves would put them on the same footing as normal companies and other organisations. However, this was not to be.

The chancellor will have been aware of the benefits of doing so. One piece of analysis suggests that the Inland Revenue loses £138,000 on every £1m of profit they make. From the “magic circle” of City law firms – Linklaters, Allen & Overy, Freshfields and Clifford Chance (excluding Slaughter and May, which follow the traditional partnership model) – that would amount to an extra £4bn a year. That’s £4bn from just four sets of lawyers. To put that in context, VAT on school fees is predicted to raise £1.7bn a year.

Private school parents, farmers and employers up and down the land were made to suffer. The aftershocks are still being felt. Despite Sir Keir Starmer and Reeves saying they didn’t want to pass on the pain to the normal working person, inevitably now some companies are saying they are having to cut back to meet the extra costs. Retailers are warning daily of inevitable job losses and increased prices because of the NI increase. Yet LLPs were excluded.

The solicitors’ journal, The Law Society Gazette, was in buoyant mood, leading its coverage with the headline: “Budget ’24: LLP members spared as national insurance ‘loophole’ remains”.