Rachel Reeves considering tax hike for lawyers and accountants

Chancellor Rachel Reeves is considering changes to the tax system which would lead to some lawyers, accountants and doctors paying more, in next month’s Budget.

The professions are among those which sometimes use limited liability partnerships (LLPs), meaning they are treated as self-employed and not subject to employers’ National Insurance.

The Times reported that Reeves would impose a new charge on people using LLPs, which would be slightly lower than the 15% rate of employers’ National Insurance.

Reeves is widely expected to raise taxes in her Budget on 26 November, after gloomy economic forecasts and a series of U-turns on welfare cuts made it harder for her to meet her own fiscal rules.

The chancellor has signalled she is likely to focus on wealthy individuals, saying “those with the broadest shoulders should pay their fair share”.

A number of tax experts and think tanks have suggested extending employers’ National Insurance to partnerships, arguing this would make the tax system fairer.

Supporters of the idea also point out it would mostly affect high earners.

Adam Corlett, principal economist at the Resolution Foundation, a think tank which focuses on people on low-to-middle incomes, said: “The chancellor will need to raise taxes in her upcoming Budget, and should do so in ways that improve the tax system.

“An important step would be to level the playing field in how different ways of working are treated, with wages currently taxed more than other forms of income.”

NHS GPs are not allowed to operate as an LLP under the terms of their contract.

However, changes to the taxation of LLPs could affect locum doctors and those working in private practice.

A spokesperson for the British Medical Association, the trade union for doctors in the UK, said extending National Insurance to LLPs would be highly likely to erode “the financial viability of many small, doctor-led practices”.

“This added cost will inevitably be passed on to patients, making private care less accessible and discouraging doctors from continuing or entering private practice,” the spokesperson added.

The CenTax think tank has estimated imposing employer national insurance on all forms of partnerships would raise around £2bn a year.

However, this figure would be smaller if changes only applied to LLPs.

Stuart Adam, a senior economist at the Institute for Fiscal Studies, told the BBC there was uncertainty over how much such a measure could raise as he would expect some people to restructure their tax affairs in response.

He said taxing this group of people more heavily would also be “a disincentive to work” and “in some extreme cases, you might see some people leaving the country or not coming to the UK in the first place”.

Mr Adam added that it would not address the “fundamental underlying issue” that tax rates on the self-employed are much lower than on employees.

A Treasury spokesperson said: “We do not comment on speculation around future changes to tax outside of fiscal events.”

Some analysts have estimated Reeves will have to raise taxes or cut spending by around £20bn to meet her “non-negotiable” financial rules.

These rules mean her plans must be projected to get government debt falling as a share of national income by 2029-30, and day-to-day government costs must be paid for by tax income rather than borrowing.

In its general election manifesto last year, Labour promised not to increase income tax, VAT and corporation tax, limiting the government’s options to raise revenue.

The party also promised not to raise National Insurance – prompting a row last autumn when it announced a hike in the contributions paid by employers.