(Bloomberg) — UK tax officials said they would no longer go through with a crackdown that would have impacted swaths of private equity firms, marking the latest win for the industry under the new Labour government.
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HM Revenue and Customs said it’s no longer planning to make changes to the way limited liability partnerships are expected to make their National Insurance contributions after fielding feedback from industry representatives.
Many private equity firms, consultancies and accounting companies are set up as limited liability partnerships. Under HMRC rules, members of those partnerships who contribute a certain amount of capital to the business — known as top-ups in industry parlance — are considered self-employed, which reduces how much in National Insurance contributions their employer would be expected to pay.
“Having conducted a thorough review and listened carefully to industry representatives, we’ve decided that the anti-avoidance rule does not apply where top-ups are genuine, intended to be enduring and give rise to real risk,” an HMRC spokesperson said.
The Financial Times first reported the change.
At her October budget, Chancellor of the Exchequer Rachel Reeves softened a plan to raise taxes on certain income that buyout executives make following lobbying by the industry.
Private equity executives will pay 32% on carried interest — their returns on asset sales — from April. While that’s up from the 28% they pay now, it is well under the 45% top rate of income tax which some feared Labour would move to.
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