LLP partners face uncertainty amid speculation of Budget tax hike

There is increasing speculation that Rachel Reeves intends to impose a new charge on LLPs when her Budget is delivered on 26 November 2025. According to The Times, this would be slightly lower than the 15% rate of employers' National Insurance.

The government's economic forecasts make it clear that tax rises are necessary to meet current spending commitments, and many analysts estimate that Reeves will have to raise taxes or cut spending by around £20bn to meet her 'non-negotiable' financial rules.

However, targeting LLPs in this way will prove controversial, but Reeves and her advocates will likely argue that imposing additional tax on LLPs will make the tax system fairer and point to the fact that this will affect mostly high earners.

To her detractors, however, such a move would represent the latest in a series of ‘tax grabs’ against business owners and another blow against those entrepreneurs who generate the value on which our economy depends.

Partners in LLPs may be paid relatively highly, but this doesn't take into consideration the risk that comes with being a partner, particularly financial (if an equity partner), but also a lack of employment rights.

As ever, the devil will be in the detail. At present, our understanding is that this would apply to trading partnerships only and would exclude investment partnerships and general partnerships (meaning that GPs will be excluded).

According to the CenTax information platform, imposing national insurance on LLPs would raise around £2bn for the treasury. But at what cost?

Dan Neidle of independent tax think tank, Tax Policy Associates, has provided an illustrative example of a solicitor who earns £316k (being average partner/LLP income) and currently takes home circa £180k. If their income were subject to employer National Insurance, they would take home £158k. This represents an increase in the effective tax rate from 43% to 50%.

Alongside this rumoured tax increase, many LLPs will have been impacted by accelerated tax following basis period reform and are already grappling with the changes to FRS 102, which will also impact profits.

We await with interest details of if and when any changes to the taxation of LLPs will be effective. At this stage, opportunities for mitigating actions remain minimal; however, should these changes be implemented, the specialist legal sector team at Armstrong Watson will be available to assist.