Trowers & Hamlins is planning to issue a cash call to participating partners in response to new HM Revenue & Customs changes to the partnership tax regime.
The firm plans to ask its fixed-share partners to contribute 30 per cent of the fixed element of their salary on top of the £20,000 they have already contributed on joining the firm.
It is one of a growing number of firms considering asking their salaried partners to inject capital in response to a HMRC tax clampdown on LLPs avoiding paying national insurance contributions (NIC) on ‘self employed’ partners with a low stake in the equity (18 December 2013).
Senior partner Jennie Gubbins said the level two participating partners could all be asked to inject the cash when the firm confirmed the changes after HMRC’s final guidance on the changes is published next week.
Gubbins said she was keen to raise the amount injected above the required 25 per cent of the fixed-share remuneration in order to give some “leeway”.
Around half of the firm’s ‘participating partner’ salary is performance related with bonuses ranging between £14,000 and £35,000 over the last five years. The other half is a fixed share of profits.
The firm has 50 participating partners, some of which are based internationally. The UK based partners will be asked to contribute in order to meet the new HMRC test (17 December 2013).
The HMRC guidance is aimed at preventing firms from avoiding paying NIC on partners with little control in the running of the firm.
The cash injection at Trowers will not add up to a bigger stake in the firm however. Gubbins said capital contributions did not equate to more equity points. Of the firm’s 120 partners only eight are on the management board.
She said she expected some people to be paying in cash and others to borrow from the firm’s bankers. But sources suggest banks are unhappy about the sudden rush in loan requests from law firms across the city.
Today TLT became the first firm to confirm it was considering a £20,000 cash call to each of its 60 fixed-share partners, boosting the firm’s coffers by £1.2m in total.
Firms have been busily consulting on how to respond to the change being introduced. Trowers wrote to participating partners before Christmas and held two meetings with them in the first week in January (13 January 2014). The firm will not confirm the changes until the guidance published next week.