Potential National Insurance Changes for LLP Members

Overview

Recent reports suggest that the Chancellor, Rachel Reeves, is considering a significant change to the National Insurance Contributions (NICs) regime — one that could have major implications for members of Limited Liability Partnerships (LLPs).

While these reports remain unconfirmed, the level of detail contained in the leaks suggests that the Treasury is seriously examining proposals to bring LLP members more closely in line with employees in terms of NIC treatment.

If implemented, this would mark the most substantial change to the taxation of professional partnerships in over a decade, with potentially material consequences for how firms structure their affairs.

What’s Being Proposed

Although no formal policy has been announced, the reported proposals indicate that:

• The Government is considering imposing an “employers’” NIC on LLP members’ profit shares.

• Currently, employers’ NICs are not payable on LLP profits because LLP members are treated as self-employed, similar to partners in traditional partnerships or sole traders.

• LLP members already pay Class 4 NICs (the equivalent of employees’ NICs) on their profit shares.

• It appears — somewhat unusually — that the change would not apply to traditional partnerships or sole traders.

• The measure could be announced in the November 2025 Budget, with potential implementation from April 2026 (though a longer lead-in period would be expected).

• The Treasury reportedly estimates the measure could raise around £2 billion per year.

Who Could Be Affected

The proposals appear targeted at addressing perceived tax inequalities between LLP members and company directors/shareholders, particularly among:

• Professional services firms — law, accountancy, surveying, medical, and consultancy practices.

• High-earning LLP members, such as those in financial or investment management, who could see a notable reduction in take-home profits.

Curiously, traditional partnerships and self-employed individuals are expected to be outside the scope of the new rules.

It has been suggested that this distinction reflects political sensitivities — for example, many GP practices are structured as traditional partnerships, and taxing doctors more heavily would be politically challenging.

However, this carve-out would create clear inconsistencies, as many large professional firms (including high-earning legal partnerships) remain structured as traditional partnerships and could therefore escape the new charge altogether.

Why Now?

The Treasury has been signalling for some time a desire to “rebalance” the tax system and close perceived loopholes between different forms of work.

The Chancellor has emphasised the need to raise additional revenue amid slower growth and a worsening fiscal outlook, while maintaining a commitment not to raise headline income tax or VAT rates.

The LLP reform appears consistent with HMRC’s ongoing focus on ensuring “fairness” and alignment between those working in similar roles under different legal structures.

Potential Impact

If implemented as suggested, the changes could materially increase the overall tax burden for LLP members.

At current employer NIC rates (15% from April 2025), an LLP member earning:

• £150,000 could see an additional £20,000 liability;

• £500,000 could see an additional £70,000 liability;

• £1 million could see an additional £140,000 liability.

These figures are indicative only — the final impact would depend on the rate, scope, and whether any thresholds or exemptions are introduced.

Our View

While the Government’s emphasis on fairness is understandable, this proposal risks increasing the tax burden on productive professional firms at a time when many are already under cost pressure.

The detail will be critical: whether traditional partnerships are included, whether smaller LLPs are protected, and how transitional or threshold rules are designed.

Politically, the Government may attempt to present the reform as a tax on “businesses” rather than “working people” — echoing the approach used when employers’ NICs were last increased. In reality, for many LLP members, this would feel very much like a direct reduction in income.

For example, a doctor in a private medical LLP could see the effective equivalent of a pay cut if the LLP becomes liable for employer NICs on profit shares. A sensible design would introduce a threshold or taper to exclude moderate-earning professionals while capturing very high earners — though this has not yet been confirmed.

What Firms Should Consider

If the changes materialise, firms may wish to review their ownership and profit structures. Options might include:

• Converting to a traditional partnership (if those remain outside scope);

• Considering incorporation, depending on comparative tax outcomes;

• In limited cases, operating as sole traders, where feasible.

However, we strongly advise against making any structural changes until full details are published. Each firm’s circumstances will differ, and there will be no “one-size-fits-all” solution.

Next Steps

• Monitor the November 2025 Budget for formal announcements.

• Begin modelling the potential impact under a range of assumptions.

• Review partnership and LLP agreements for flexibility in adjusting drawings or profit allocations.

• Be ready to respond swiftly once draft legislation is released, expected in early 2026.