Policy proposal: Partnership profits and National Insurance Contributions (NICs)

Media reports suggest that Rachel Reeves, the current Chancellor of the Exchequer, is considering the introduction of National Insurance Contributions (NICs) at 15% on partnership profits. Some reports indicate that the government may apply this charge specifically on limited liability partnerships (LLPs), potentially excluding general and other partnerships from the proposals.  

Although no formal announcement has been made, and there is no confirmation that the proposals will be introduced at the Autumn Budget on 26 November 2025, the potential implications are significant. Firms should therefore monitor developments in this area closely.  

What is being proposed? 

The policy proposals originated from the Centre for the Analysis of Tax (CenTax), an influential UK think-tank. On 4 September 2025 CenTax published a report titled Equalising National Insurance on Partnership Income: Revenue and Distributional Effects. It models the introduction of a new NIC charge on partnership profits, equivalent to Class 1 Secondary National Insurance Contributions (referred to as “Employers NIC”). For clarity, we refer to this proposed levy as “Partnership NICs”. 

How NICs currently apply to partners vs employees 

At present, most partners (including non-salaried members) in partnerships, LLPs, and limited partnerships (LPs) are subject to: 

• Class 4 NICs at 6% on annual profits between £12,570 and £50,270. 
• Class 4 NICs at 2% on annual profits over £50,270.  

These apply regardless of whether those profits are drawn from, or retained in, the firm.  

By contrast, employees and/or directors  are subject to: 

• Class 1 Primary NICs at monthly rates of 8% on employment income between £1,048 and £4,189.  
• Class 1 Primary NICs at 2% on employment income above £4,189.
• Class 1 Secondary (Employers) NICs at 15% on most employment income.  

This results in a disparity in marginal tax rates: approximately  47% on partnership profits for additional rate taxpayers, compared to 53.9% on employment income. 

Key feature of the CenTax proposal 

The CenTax report commences its policy analysis from this NIC disparity,  noting that in 2020, 46%  of all partnership profits  accrued to the top 0.1% of UK taxpayers by income.  

To address this, the report proposes:  

• A 15% Partnership NIC, mirroring Employers NICs, applied to partnership profits before income tax and Class 4 NICs.  
• A £5,000 annual exempt amount per partner, applied to each firm. 
• A £10,500 “partnership allowance”, applied at the partnership level.  

The effect of the proposal would be an increased marginal tax rate of: 

• 9.6% for basic rate taxpayers  
• 7.6% for higher rate taxpayers  
• 6.9% for additional rate taxpayers.  

Strategic implications for firms 

If introduced, the proposals could, practically, lead some firms to consider incorporation, allowing profits to accrue in a company structure (subject to corporation tax), with further tax only applied when fund are extracted via salary (subject to NICs) or dividends (currently exempt from NICs).  

Similarly, professional services firms operating in certain sectors may also view the UK as a less attractive jurisdiction for operations if the proposals are adopted in full. These are not insignificant consequences, and firms will need to consider both short-term tax impact and longer-term structural decisions. 

If you would like to discuss the implications of these proposals or explore wider strategic options for your firm, please get in touch with our professional firms team.