UK accountancy firms have started lobbying against planned tax reforms that could affect partnership structures, reports Financial times.
Chancellor Rachel Reeves is expected to announce these changes in next month’s budget, which has sparked a wave of concern across several professional sectors.
The Chancellor is said to be planning to incorporate national insurance into the tax obligations of certain UK professionals.
The Center for Tax Analysis (CenTax) estimates that around 200,000 people could be affected, which could generate £1.9 billion ($2.5 billion) a year for the government.
In the UK, several large law and accounting firms choose to operate as limited liability partnerships (LLPs).
This business structure offers them the benefit of favorable tax treatment, even as they make substantial profit margins.
According to Dan Neidle of Tax Policy Associates, removing the exemption from national insurance contributions for these LLPs would increase the marginal tax rate for partners from approximately 47% to 54%.
In response to the upcoming tax changes, senior representatives from the big four accounting firms and related trade bodies have begun talks with government ministers.
The industry is examining the government’s intentions, questioning whether the proposal is a definitive plan or a litmus test, the FT report added, citing sources.
There is speculation that the companies could pass on the additional tax costs to their clients, including the UK government, which has reportedly spent substantial sums on contracts with the Big Four accounting firms and LLPs.
Some senior partners are also said to be considering “alternative structures” for their businesses to mitigate the tax impact.
These alternatives range from setting up as a classic ‘limited’ corporate structure, adopting a general partnership model or even relocating some services outside the UK.
It is said that some companies already have contingency plans in place.
A partner at one of the big four accounting firms told the media outlet: “We have to think about the UK to determine if it is competitive. I understand the challenges facing the Chancellor and the need to raise taxes, but we cannot put the UK at a competitive disadvantage.”
“UK accounting firms lobby against planned tax changes” was created and originally published by The Accountant, a brand owned by GlobalData.
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