Government brings in LLP rule changes

Chancellor George Osborne has announced planned changes to the way Limited Liability Partnerships will be taxed, amid government claims that LLPs are paying less National Insurance than they should.

Announcing the plans in his budget, Mr Osborne took aim at the practice of considering limited liability partners as self-employed when their role is in fact closer to that an employee. This has meant that these firms have not needed to make the appropriate National Insurance contributions associated with employees, thus affording them a significant tax break.

The main change Mr Osborne has proposed is removing the assumption of self-employment that has been the norm in recent years. There is a suggestion that some organisations are affording partnership status to suspiciously young people who would seemingly be more appropriate as an employee, simply to avoid National Insurance.

These changes are unlikely to come into force before 2015, giving firms at risk of being caught out under the proposed changes a chance to revisit their partnership model, and those setting up a new LLP some idea of what they need to be doing.

How have LLPs reacted?

Many LLPs, particularly in the legal sector, have confessed they are not surprised by the proposals, but have admitted that a thorough re-examining of their LLP agreements could be necessary to ensure they are compliant.

However, some have also suggested that the only organisations that need to worry are those engaged in the practice that has provoked the Chancellor’s ire. Those who have taken proper care when drafting their agreements should already be in line with the new rules, and indeed may embrace the plans for the clarity they could provide.

Your Limited Liability Partnership agreement

If you feel you need to look again at your partnership agreement in order to prepare for any changes that Mr Osborne would like to bring in, or if you are a start-up looking for initial advice, contact Ralli Partnership Law solicitors for everything you need to know about LLPs.