Eversheds has started talks over the voting rights of its fixed share partners (FSPs) after they were asked to contribute 25% of their annual earnings in response to HM Revenue & Customs (HMRC) tax changes for limited liability partnerships (LLPs).
The top 15 UK law firm called on its 164 junior partners to make the contributions to avoid being deemed as employees, which would require Eversheds to pay national insurance contributions for them.
Under the new HMRC rules, partners are deemed employees if they have less than 25% of their salary attached to profits. Firms were requested to put in place plans for contributions by 6 April 2014, with capital expected within three months.
Chief executive Bryan Hughes said in a statement: ‘Following a series of discussions, our FSPs will be making capital contributions equivalent to 25% of their profit share. During the course of these discussions, associated issues such as voting rights, were raised. We obviously had to act quickly to ensure that the capital payments were in place in line with the timescales set down by HMRC. We have, however, agreed with our FSP group that we will engage with them in an extended consultation to discuss these associated concerns in more detail.’
Under the guidance notes published by the HMRC in response to claims that LLPs can be used as tax avoidance vehicles, an LLP member faces three tests to define if they are an employee for tax purposes. These relate to influence over partnership affairs, the level of capital injected and if their equity share can be classed as a ‘disguised salary’.
In response, a series of law firms have asked their junior partners to contribute capital in recent weeks with Hogan Lovells last week calling on its 65 non-equity partners to make capital contributions of around £60,000 to £100,000.