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Hogan Lovells calls on non-equity partners to inject £60k to £100k in response to HMRC shake-up

Hogan Lovells has called on its non-equity partners to make a significant capital contribution in light of HM Revenue & Customs’ (HMRC’s) decision to overhaul the way salaried partners are taxed, which is set to kick in this month.

Around 65 non-equity members will contribute capital of around £60,000 to £100,000 each, after the HMRC found, following a lengthy review of limited liability partnerships (LLPs), that partners with less than 25% of their salary attached to the equity would be viewed as having a ‘disguised salary’ and taxed as an employee.

Capital investment by salaried partners – which will total between £3.9m and £6.5m – will save the firm having to pay more in tax in respect of national insurance, and the firm said today (3 April) that loans will be available to salaried partners from the firm’s banks on the same terms as those available to equity members.

A spokesperson for the firm said: ‘We are having to act in anticipation of the final rules, which come into effect from 6 April.

‘Our approach is to ensure that the terms for non-equity members are fair to both them and the firm and that our non-equity members are treated by HMRC as the partners that they are. The capital itself doesn’t need to be paid until early July.’

The decision comes as a number of LB100 firms have confirmed that they are reviewing their capital contribution arrangements or have already made changes. TLT recently 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.

National firms Trowers & Hamlins and Weightmans are both expected to require fixed-share partners to inject capital following a consultation.

Hogan Lovells has no net debt, as reflected in the most recent set of LLP accounts. The transatlantic firm recently unveiled its highest post-merger global financial results, posting a fee-income increase of 5.2% while profit per equity partner (PEP) and revenue per lawyer (RPL) increased by 10% and 3.7% respectively.

Fee-income increased to $1.72bn, while PEP rose to $1.21m and RPL was up to $742,613. Across the regions, the Americas represented approximately 46% of total billings, while London and Continental Europe together equalled 47%, and the Asia & Middle East region totalled 7%.