Chancellor Rachel Reeves has is reported to be backtracking on plans to raise tax through the imposition of of a national insurance equivalent levy on limited liability partnerships. First reported in The Times, it had been suggested efforts to raise revenue could include a new charge on LLPs which are not currently subject to national insurance; the new tax could have been levied at a slightly lower rate than the employers’ rate of national insurance.
But following lobbying from professionals services sectors the Financial Times last week reported the plans could be watered down.
It has now been suggested the levy could be scrapped altogether after Treasury analysis indicated it would trigger behavioural change amongst LLP’s who would bring forward profits to avoid the new charge before its introduction. There would be a short term increase in income tax but the policy wouldn’t achieve any medium to long term objectives with a government source quoted in The Times as saying it ‘just isn’t worth it.’
Last week Law Society vice president Brett Dixon warned ‘poorly designed tax burdens could stifle investment, recruitment and innovation, which would ultimately reduce jobs, secure livelihoods and access to justice when we need it’. He added the UK legal sector is ‘a global powerhouse’ employing more than half a million people and exporting more than £9 billion in services.
It had been suggested a tax on partner profits could raise £1.9bn a year if applied at the usual rate of 15%. Another measure reportedly under consideration was a salary exemption, exempting partners paid below a certain level.
Dixon had called on the chancellor to ‘sit down and talk to the sectors affected by her LLP tax proposals.’
“The Law Society would welcome more equity in the tax system but without full economic analysis and consultation, the sector remains concerned that tax hikes will damage the growth and competitiveness of the UK. Any tax increase could be distortive and damaging to the professional services sector.”
Reeves took the unusual step of issuing a ‘scene setter’ speech last week providing the clearest indication yet sizeable tax rises are on the way, with speculation rife manifesto-breaking increases to income tax are on the way.
Alongside changes to the unpopular agricultural and business property relief proposals; caps on lifetime gifting and/or considering change to the current taper rate; and a mansion tax that could see the current exemption from capital gains tax (CGT) under private residence relief end for properties above a certain threshold it has been further reported the current benefits enjoyed by salary sacrifice pension schemes could be targeted.
There is currently no limit on how much money an employee can put into their salary sacrifice pension scheme before they are taxed national insurance. It is understood a cap on the amount of salary that can be sacrificed without incurring national insurance payments at £2,000 a year. Pension contributions over that level would be taxed at the full rate of NI (8%) if the salary is less then £50,000 a year, and 2% on income above that.
It is set to be a double hit as employers would also lose the tax break that allows them to fund more generous employer pension contributions. As it stand firms running salary sacrifice pension scheme do not pay employer national insurance tax on the proportion of salaries that go into workers’ pensions. Under these plans, that exemption would be limited.
