Business Finance: Robert Leggett explains why many professional firms are adopting new business structures
- Credit: Archant
The traditional partnership has served professionals well for many years, but a number of factors are now causing firms to review their structure.
High up on the list is limited liability, which is much more important in our modern times, not only because of the risk of claims, but other factors such as the wider economy which impact upon the business risk to which we are all exposed. Unlimited liability has become a greater deterrent to would-be partners, and makes achieving outside investment almost impossible. At its simplest, firms have converted to LLP status to achieve this.
Many firms are also motivated to make a change to achieve tax efficiency; continuous changes to the tax regime over the past 10 years have favoured company structures over unincorporated ones. A change in structure can sometimes reap significant tax savings and the limited company is, therefore, being investigated more often as a structure for professional practice.
There are also a number of “hybrid” structures, including corporate partnerships, mixed partnerships and service companies. However, the recent tide of anti-avoidance legislation means those firms with these structures urgently need to review their tax position.
LLPs also need to review the new legislation on the tax treatment of “salaried” members of an LLP. They may need to come on the payroll as employees if certain conditions are not met, instead of being treated as self-employed.
Although we are all similar, every professional practice I come across runs in a slightly different way and has different goals. Our approach, which is not followed by all firms, is to dismiss any notion that there is any “one size fits all”, and to consider all options in each case; we are not out to “sell” any particular structure. I believe that caution should be exercised before undertaking fundamental structural changes purely for tax reasons. As well as anti-avoidance legislation and future changes, there are many factors to consider, so careful planning is needed.
To help you in deciding what the right route for your practice is we are hosting a series of free workshops across the region. To find out more please visit our website www.ensors.co.uk/lpsworkshop .
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: : Robert Leggett is corporate tax partner at Ensors Chartered Accountants.
This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.