Chancellor Rachel Reeves is preparing a significant tax overhaul targeting middle-class professionals, with lawyers, GPs and accountants facing the biggest financial hit in the forthcoming Autumn Budget.
Who Faces the Tax Squeeze?
The Labour Chancellor is expected to announce a new charge on workers using limited liability partnerships, a move projected to raise £2 billion for Treasury coffers. This forms part of broader efforts to address what officials describe as a £30 billion to £50 billion black hole in Britain's public finances.
According to analysis by The Times, the changes will specifically target partnerships in an effort to equalise the tax treatment between different business structures. The UK currently hosts 355,760 partnerships, with 86,030 of these employing staff, according to data from Money.co.uk.
The Financial Stakes for Professionals
Research from the Centre for the Analysis of Taxation (CenTax) reveals the substantial incomes at stake. Solicitors receive a fifth of all partnership income, averaging £316,000 each in company profits annually. The figures remain significant for other professions:
- General Practitioners (GPs): £118,000 average profit
- Accountants: £246,000 average profit
Perhaps most strikingly, more than 13,000 partners earn an average of £1.25 million per year, highlighting the concentration of wealth within this sector.
Expert Views on Tax Equality
Arun Advani, director of CenTax, told The Times that there's no justification for partners paying less tax than similarly high-earning employees and business owners. Since partnership income is hugely concentrated, with almost half going to those in the top 0.1 per cent, exempting partners from any equivalent to employer NICs is very regressive and simply means higher taxes for everyone else, he argued.
Stuart Adam, a senior economist at the Institute for Fiscal Studies, acknowledged that people in LLPs are generally very well off and in many cases are just supplying their labour like ordinary employees are, so it's not clear why they should get preferential treatment.
However, Adam also cautioned about potential consequences: But as with any tax rise, it can provide a disincentive to work. There may be other ways that people might respond, including in the most extreme cases leaving the UK or not coming in the first place.
The Chancellor will formally announce the system changes in her Autumn Budget on November 26, setting the stage for significant financial reforms affecting Britain's professional classes.
