The April 2026 tax changes affect remuneration planning in professional services firms, whether structured as incorporated entities or LLPs. For firms with stable, predictable profits, small adjustments to extraction strategy can improve tax efficiency without disrupting established practices.
Why this matters for professional services leaders
Partners and shareholder directors in professional services firms typically have healthy margins and personally significant income levels. Stability and predictability are valuable, but efficiency still matters.
Small, well structured adjustments to remuneration and profit extraction can improve tax efficiency without disrupting established partner expectations or firm culture. The key is identifying opportunities that are material enough to warrant action but not so disruptive as to create operational or relationship friction.
What you need to know or consider
Profit extraction efficiency: How firm principals extract profits efficiently depends on structure. Incorporated firms have salary and dividend options, while LLPs work through profit allocation and drawings. Both structures are affected by the April 2026 changes, albeit in different ways.
Dividend tax increases (incorporated firms): The increase to 10.75% (basic rate) and 35.75% (higher rate) from April 2026 makes pure dividend extraction less efficient than it was. For incorporated professional services firms, reviewing the salary versus dividend balance may be appropriate.
Frozen thresholds and NIC costs: Frozen income tax thresholds and elevated employer National Insurance costs affect both incorporated and LLP structures. For corporate structures, the Employment Allowance of £10,500 provides some offset where eligibility conditions are met.
LLP profit allocation and drawings: For LLP structures, profit allocation and drawings considerations differ from incorporated firms. Changes to income tax thresholds and rates affect partners’ personal tax positions, and pension planning opportunities exist within the LLP framework.
Employer pension contributions: For incorporated firms, employer pension contributions can reduce immediate tax exposure while building retirement provision. For LLPs, partnership pension planning offers similar benefits within a different structural framework.
Loan accounts and capital accounts: Directors’ loan account management remains important for incorporated firms, with the s455 charge now at 35.75%. For LLPs, capital account management serves a similar function and requires equivalent attention.
Succession and retirement planning: How remuneration structure influences exit value and Business Asset Disposal Relief eligibility (where applicable) becomes more important as partners consider succession. Early planning can protect both value and tax position on exit.
These changes affect both incorporated and LLP professional services structures. We can review your current position and identify opportunities that balance tax efficiency with operational simplicity and partner expectations.
