EMBARGO: 00.01 4 Sept 2025
Almost half the revenue raised from introducing Partnership NICs would be raised from partners in the top 0.1%. By providing the same allowances as available to employees, 66% of current partners would pay no additional tax. This analysis comes from a new report from the Centre for the Analysis of Taxation (CenTax) using HMRC tax data.
Partners currently face significantly lower effective tax rates than employees, due to the lack of an equivalent to Employer NICs for partnerships. Top-earning partners also pay lower effective tax rates than company-owner managers who take equivalent income from dividends. These distortions currently hamper productivity and growth.
The report uses HMRC tax data and finds that:
- The top 0.1% of UK taxpayers by total income received 46% of all partnership income in 2020, compared with less than 5% of employment income.
- 1800 partners in Kensington received over £1.8 billion in partnership income, exceeding the profits of all 65,000 partners in Wales and Northern Ireland combined.
- Solicitors received one fifth (20%) of all partnership income, averaging over £300,000 in partnership profits annually.
The report highlights that the current treatment is regressive, treats otherwise similar people unequally, facilitates tax avoidance, and is bad for investment and growth. It is an “accident of history”that serves no useful purpose in the tax system.
Reform to equivalise the treatment of partners with employees via the introduction of ‘Partnership NICs’ would:
- Raise an estimated £1.9bn in 2026-27, after accounting for behavioural responses and interactions with other taxes. The report suggests that this revenue could be used either to fund spending or cut other taxes.
- Only impact one third (34%) of current partners, due to the proposed Partnership Allowance and Partners’ Exempt Amount, which together ensure that partnerships with less than £90,000 in profits would pay no additional tax.
- Raise 98% of the additional revenue from individuals in the top decile by total income.
- Improve productivity by removing distortions in how people work and how businesses are structured.
Arun Advani, Director of CenTax and Professor of Economics at University of Warwick, said:
“The lack of NICs on partnerships is an accident of history that is damaging productivity and growth. The tax break for partners also means higher taxes for everyone else, so scrapping this could be used to pay for a tax cut elsewhere.”
Andy Summers, Director of CenTax and Associate Professor of Law at LSE, said:
“Almost half the current tax break goes to partners who are in the top 0.1% highest earners in the UK. It is hard to think of any principled reason why these top-earners should pay lower tax rates than employees and other business owners receiving similar amounts.”
ENDS
Notes to editors
- While the headline rate of Employer NICs is 15%, the effective tax increase from Partnership NICs would be considerably lower as partners would face reductions in Income Tax and Class 4 NICs due. A partner paying the additional rate of Income Tax would see a tax rise of 6.9%.
- CenTax Policy Report Equalising National Insurance on Partnership Income: Revenue and Distributional Effects by Arun Advani, Sebastian Gazmuri-Barker, Andrew Lonsdale, and Andy Summers will be published at 0.01 on Thursday 4th Sept 2025
- The Centre for the Analysis of Taxation (CenTax) is an independent research centre dedicated to improving public understanding of tax policy and helping to design a better tax system. This research was funded by the Nuffield Foundation (WEL/FR000023787) and the ESRC (ES/W001683/1).
- This work contains statistical data from HM Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information.
