NIC rise will see 'big law firm partners' pay a little more
Treasury seeks higher contributions from lawyers while HMRC targets advisers who enable tax avoidance schemes
Law firm partners could see their national insurance contributions increase by £700 over the next two years following measures included in the latest government budget.
Presenting his first and last Spring Budget to parliament on 8 March, the chancellor of the exchequer, Philip Hammond MP, announced that NIC for the self-employed, such as law firm partners, will rise despite a 2015 manifesto pledge not to increase tax, NIC, or VAT for five years.
The changes will see the 9 per cent rate of class 4 NICs currently paid by the self-employed earning between £8,060 and £43,000 rise to 10 per cent in April 2018 and to 11 per cent in April 2019. This amounts to £350 a year from April 2018 and a further £350 a year from April 2019.
If the budget is passed by the House of Commons, the NIC measures will see the Treasury’s revenues increase by £970m over the next three years.
Speaking to Radio 4’s Today programme, the chancellor sought to downplay the effects of the rise on the self-employed, arguing that it is only ‘a small number of people on higher incomes, partners in big law firms, for example, who are going to pay a little more’.
Roger Harding, tax director at Gordon Dadds, said the self-employed, ‘many of whom work in professional firms’, will be ‘disappointed’ at the NIC rise.
‘While the increase for those affected in terms of cash is small, the differential in NIC rates was historically provided in recognition of the fact that self-employed people had to make provision for their own private pension. The increase will now significantly reduce the ability to make such provision.’
However, with the threshold for paying higher-rate tax also increasing from £43,000 currently up to £45,000, Louis Baker, head of professional practices at audit, tax, and advisory firm Crowe Clark Whitehill, suggested that the impact of the NIC rise on partners will be minimal.
‘Partners may well be pleasantly surprised,’ said Baker. ‘Their tax bills reduce slightly over the next tax year and it is only in two years’ time that they face a net increase in tax and NIC of about £400. This is not much change at all.’
Elsewhere in the budget, HM Revenue and Customs confirmed plans to seize £115m over the next five years from professional advisers who have enabled a person or business to use a tax avoidance arrangement later defeated by HMRC.
Jason Collins, head of tax at Pinsent Masons, said the Revenue was likely to target law firms, QCs, and accountants with sanctions.
‘£115m is a very substantial amount. It begs the question as to whether HMRC intends to bankrupt some of the operators in the tax-planning field that they consider to be on the fringe. However, innocent accountants and lawyers could become collateral damage,’ he said.
‘HMRC’s recent strategy on tax avoidance has been to deter people from engaging with it, be they the end user or adviser. HMRC is ready to utilise its powers as a deterrent.’
Also commenting on the sanction proposals, Chancery Lane repeated its warning that solicitors should not be penalised for advising clients in good faith on their tax liability.
‘The Law Society understands the government’s desire to prevent people abusing the tax system through tax evasion and aggressive tax avoidance. However, everyone loses if these measures stop taxpayers receiving proper legal advice on their tax obligations,’ said Robert Bourns, the president of the society.
‘Our experts have had a productive and ongoing dialogue with HMRC, and we will continue to advocate for a final law that ensures access to legal advice is properly protected.’
John van der Luit-Drummond is deputy editor of Solicitors Journal