UK Chancellor Reeves Aims Her Sights on Lawyers & Others

Ben Borman, LawFuel contributing editor

UK Chancellor Rachel Reeves is eyeing roughly £2 billion a year by slapping employer-style National Insurance contributions (NICs) on members of LLPs, that’s lawyers, accountants and anyone else who looks suspiciously well-remunerated.​

Under the current regime, LLP members are taxed as self-employed individuals and pay Class 4 NICs on profits,, but firms don’t pay employer NIC at all. Reeves wants to change that by importing the 15 percent employer rate into the LLP world.

The move, reported in The Times and elsewhere and also confirmed by multiple Treasury whispers, would effectively align partners with salaried employees in NIC treatment.

​The Times reported: Reeves has made it clear that she wants tax rises to be directed at those with the “broadest shoulders”, indicating why she is likely to target lawyers, consultants, accountants and employees of some investment firms whose pay packages frequently reach seven figures.

City AM puts the extra burden at as much as £46,000 per partner, depending on income levels — or, as Reeves’s comms team would say, “a fair contribution”. For a partner pulling £316,000 a year, the likely extra bite is closer to £23,000 being about a 7 percent hit to their take-home. The legal sector, unsurprisingly, calls it daylight robbery.​

Why Reeves is doing it

There’s a £30 billion fiscal hole and a late-November Budget date locked in and Reeves has promised fiscal “fairness” without torching her manifesto, and the optics of taxing lawyers, GPs and fund managers tick every focus group box.

“Why do profitable partnerships dodge a charge every normal employer pays?” is an easy headline win.​

The Worry for Lawyers

This is where the pain gets personal, with major PEP deflation. Employer NIC isn’t magically paid from spare change in the stationery budget; it lands squarely on profit distribution.

Firms that can’t raise rates to offset it will see partner takes deflate faster than Barclays bonuses after a select committee hearing.​

The Law Society has already labeled the proposal a “big hit” on the profession, noting it punishes the partnership model Reeves’s predecessors once promoted to spur innovation. Dan Neidle at Tax Policy Associates calculated that a solicitor earning £316,000 would see their effective tax rate jump from 43 percent to 50 percent. ​

‘In practice, business owners are likely to pass the cost on through higher prices and lower cost bases – lower salaries, reduced bonuses, and tighter recruitment budgets – hitting staff as well as partners. LLPs have already faced a 1.2% increase in employer NIC this year, so this is a double blow.’ Andrew England, business tax partner at accountants Menzies

Expect structure shuffling

If Reeves really goes through with this, structure-planning will be back in fashion. Firms will dust off the “incorporate the LLP” memos or revisit hybrid structures that blur the employer/partner line.

Accountants are calling it “one of the most significant tax changes in a decade”. HMRC will inevitably be watching for “avoidance” schemes like hawks at lunch.​

Pricing pain and panels

Law firms on fixed-fee panels will feel this fastest. A few percentage points of NIC drag multiplied across portfolio pricing equals serious margin erosion.

Expect panel renegotiations, “change in law” clauses, and late-night pricing committee meetings involving phrases like “cost recovery” and “client education”.​

From Reeves’s point of view, the messaging writes itself: “Tax fairness” and “closing loopholes” play beautifully against a backdrop of austerity and NHS headlines. From the legal press’s angle, the story writes just as easily: “Reeves raids the professions.” Pick your poison — it’s the same bottle.​

What’s next

Budget day is 26 November. Between now and then, every serious law firm should be running three models:

• No change (nirvana).
• Partial employer NIC on certain profit thresholds.
• Full employer NIC across the board.

If you’re in Finance, build one clean deck showing partner hits and client-side implications. If nothing happens, enjoy your early Christmas present.

Call it closing a loophole or call it a smash-and-grab. Either way, law firms are about to learn the new meaning of “sharing the burden.” The Chancellor’s move may not kill BigLaw profitability, but it’ll sting hard enough to make even the most polished equity partner wince in their next tax meeting.