Howard Kennedy partners offered self-employed status in merger switch

HowardKennedyFsi has invited all its employed non-equity partners to reclassify with self-employed status in a bid to integrate partners into the business.

Mark Dembovsky
Mark Dembovsky

The move came ahead of the merger of Howard Kennedy and Finers Stephens Innocent (FSI), which went live on 31 January this year.

Mark Dembovsky, CEO of legacy Howard Kennedy and now of combined firm HowardKennedyFsi, kicked off a consultation following the former’s conversion to an LLP in April 2011 encouraging salaried partners who were employed to make the switch when the merger took place.

A small number of Howard Kennedy partners declined, opting to keep with schedule E tax status meaning that they pay tax under the Pay As You Earn system. By contrast, schedule D workers are self-employed and fill in a self-assessed tax return.

Professional services firms do not have to pay employers’ national insurance contributions for partners classed as self-employed, but must do for any employees, including schedule E partners.

All Howard Kennedy equity partners and all of legacy FSI’s partners were already schedule D partners. However, some lateral recruits joined pre-merger Howard Kennedy as salaried partners under schedule E.

No partners switched in the opposite direction when the union launched and no de-equitisations took place.

Dembovsky said the plan was not driven by potential tax savings, a matter that came into focus last week with chancellor George Osborne’s announcement in Wednesday’s Budget of a consultation that could lead to the removal of the presumption of self-employment for LLP partners (20 March 2013).

Osborne’s proposals mean firms could have to pay national insurance contributions for non-equity partners who are currently classified as self-employed.

Dembovsky commented: “Our objective was to align people along the schedule D status, not for a tax strategy but to make them full members of the LLP, creating a greater status for them and a more inclusive status in the future of the firm.

“I don’t know why some people came in on some setups [as schedule E partners]. With the advent of the LLP structure it makes more sense for people to be members of the LLP. We then started the process of the discussions with people. Then with the merger it was a good time to focus peoples’ minds.”

Meanwhile HowardKennedyFsi has hired partner Rajan Shori from Manches, where he was head of real estate finance. Shori brings with him associate Graham Fife.

Shori advises banks, property companies, investment funds, private equity houses and high net worth indviduals on property transactions.

Manches’ head of property Louis Manches wished the duo luck.