Smaller law firms are struggling to retain their junior partners in advance of tough new capital requirements set out by HM Revenue & Customs in its crackdown on fixed-share partners avoiding PAYE tax, an executive search firm has claimed.
City lawyers have ratcheted up their attempt to limit the scope of legislation aimed at tax abuse by LLPs, with strong submissions to the House of Lords and HM Revenue & Customs.
The government’s proposed tax reforms for limited liability partnerships (LLPs) are “haphazard”, “incoherent”, backward looking, and would introduce a “bizarre distinction” between business entities, according to the Law Society.
HMRC is set to scrutinise the status of law firm partners after measures announced in the Budget. The Treasury is to consult on removing the presumption of self-employment for LLP partners and on countering the “artificial allocation of profits to partners”.
A solicitor has successfully challenged a demand to stump up nearly £150,000 in unpaid assigned risks pool premiums. He was able to show that the ARP’s manager had not established that he was personally liable for the debt of the LLP in question.
Is partnership an “inefficient and unattractive” structure that should be ditched to survive in the new legal marketplace, or is it a viable current model with much to offer lawyers wanting flexible governance and discretion? Both sides were put at a conference this week.
The number of incorporated law firms has risen sharply in the past year, with more than a fifth of legal practices now limited companies. According to Solicitors Regulation Authority figures, 2,400 of the 10,973 law firms as of July were incorporated companies, compared to 1,898 a year before – a rise of 26%.
Partnership law expert Peter Garry outlines the significant problems solicitors are storing up by forming LLPs without a written members’ agreement. He explains that many solicitors practising within LLPs are needlessly exposing themselves to potential litigation and considerable financial loss.
In the wake of the recent ruling that a fixed-share partner is a partner, not an employee, Mark Briegal of Legal Futures Associate Ralli looks at the advantages to both law firm and lawyer of a fixed share over a salary
A former fixed-share partner at south-coast law firm Lester Aldridge has lost his appeal against a ruling that he was a partner and not an employee in the limited liability partnership and so unable to claim unfair dismissal.