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Capital call on salaried partners at Weightmans and Addleshaws in response to impending LLP tax overhaul

The tally of City firms calling on salaried partners to increase their capital investment in response to new HM Revenue & Customs (HMRC) rules is growing as Weightmans and Addleshaw Goddard this week confirmed they are in the process of significantly raising contribution levels.

Partners at Addleshaws voted in favour last Thursday (20 March) of 60 fixed share partners (FSPs) making a cash investment of just over 25% of their salary, the minimum stipulated by HMRC in order to be considered a partner as opposed to an employee.

The firm called for investment of a few percentage points above the minimum to allow room for error, with the definition felt to be unclear, according to head of employment Michael Leftley, who led the top 25 firm’s response to the new legislation.

Meanwhile, at LB100 top 50 firm Weightmans, following a consultation with partners into how the firm should meet the new taxation rules, almost all the FSPs chose to put more capital into the firm with each FSP contributing on average around £30,000 to the firm, totalling £3.8m.

The amount collected – which will be invested in the firm’s development according to managing partner John Schorah – varied among partners depending on their seniority, with those who chose not to add to the pot regarded as employees under the new rules.

In response to the overhaul, which was confirmed in Chancellor George Osborne’s budget as going ahead as planned in April 2014, despite protests from the industry, firms including Herbert Smith Freehills, Ashurst, TLT, DWF and Trowers & Hamlins have all confirmed to Legal Business that they are reviewing their partner remuneration arrangements.

The new rules will mean partners with under 25% of their salary attached to profits will be regarded as having a ‘disguised salary’ and treated as employees by tax authorities in a move expected to add thousands of pounds onto firms’ tax bills.

Of the firms that have announced substantive changes so far, TLT has requested that each of its 60 fixed-share partners contribute £20,000, a move that will boost its funds by a minimum of £1.2m. ‘We will put in place external funding for fixed-share partners if needed, to support any capital contribution,’ a spokesperson for the firm said.