An article for professional services leaders and advisers on the LLP’s resurgence amid private equity investment and looming tax reforms. It covers new Companies House identity rules, litigation supervision risks, age discrimination rulings, and the FCA’s upcoming AML role, alongside trends in international consolidation, innovative firm structures, and the UK’s new Professional Services Sector Plan.
The LLP as a mere corporate wrapper for a traditional partnership structure may become a thing of the past, but the LLP 2.0 has arisen to adapt to the needs of an evolving market. Whether this renaissance is stifled by the Autumn Budget remains to be seen, however.
I'm excited to welcome you to this edition of AG's Professional Services Sector Update, which focuses on the latest topics in the industry. Private equity (PE) remains the buzzword for our sector: we explore below what impact this is having on the structure of professional services firms and whether it's possible to keep your LLP once PE comes knocking. We also take a look at the PE consolidator boom in the European accountancy market.
In addition, we have updates for you on new Companies House compliance rules (don't leave it too late!), firms sending the wrong people to court, retirement policies that don't work and the adoption of new investment structures in the US. Finishing the roundup is our look at what's next for professional services.
Historically, UK limited liability partnerships (LLPs) have been viewed with scepticism by some private equity (PE) investors more familiar with company structures. Business owners sometimes felt – rightly or wrongly – like they faced a risk of sacrificing their partnership ethos in order to take PE investment. However, LLPs are increasingly (and rightly) recognised as attractive structures for PE investment. Some of their benefits include:
As an example, in 2023 we advised Moore Kingston Smith LLP (MKS) on its investment from European PE house Waterland when it became the first major accountancy firm in the UK to take on private equity investment and fully retain its LLP status. Since then, MKS, backed by Waterland, has completed a number of acquisitions, including many where the target has been an LLP. We are increasingly seeing firms retain their LLP structure after receiving private equity investment, including recently on Cinven's investment in Grant Thornton at the end of 2024.
So far, so good for the LLP renaissance in the PE sphere. However, recent speculation (which has not been dismissed by HM Treasury) regarding the Autumn Budget and a potential additional National Insurance Contributions (NICs) type levy on self-employed LLP members and partners of general partnerships risks deflating some of this optimism.
Currently, LLP members and partners are not subject to the "Employer's" NICs requirements that apply to employees remunerated and taxed under the Pay as You Earn (PAYE) system. Although LLP members and partners still pay personal (Class 1) NICs on income, the Employer's NICs saving (at a rate of 15% of employee earnings currently and 13.8% previously) has long been one of the attractions for LLPs and partnerships in all sectors, including professional services.
Is an erosion of that tax differential potentially fatal to the LLP? It is hard to tell at this early stage given that official details are yet to be announced, there is no clear picture of how (or when) any changes might be introduced, and ultimately it may not feature in the Autumn Budget at all. We have heard these kinds of murmurings before, albeit this time the Chancellor, Rachel Reeves, is facing a particularly challenging set of circumstances as she looks to raise additional taxes from an ever-diminishing set of potential options.
It should not be forgotten, too, that whatever changes may transpire, tax alone should never be the deciding (or leading) factor in adopting an operating structure – and that applies to LLPs and partnerships too. The advantages we have outlined above in a PE context is by no means an exhaustive list and we still have high hopes for the future of LLPs and partnerships weathering any storm that they may face – including any inclement conditions under the Autumn Budget.
Third party investment has characterised the European accountancy sector in recent years. Private equity and strategic investors have targeted both established practices and industry disruptors, seeking to capitalise on the sector’s recurring revenue model and growth prospects. Accountancy firms have historically been national businesses given the predominance of network structures and local ownership requirements imposed on audit firms. We're now seeing these businesses internationalising by acquiring or merging with overseas practices (particularly consolidation within networks) in order to give them the scale and integration required to compete on a global basis. Our team has developed significant experience in advising on regulatory and structuring issues for international accounting businesses across various jurisdictions.
From November 2025, Companies House will require identity verification for LLP members, company directors and people with significant control (PSCs). New role holders will need to verify prior to incorporation or appointment, whilst existing role holders must verify within 12 months, in line with annual filing deadlines. Companies House has indicated that identity verification for corporate directors of companies and corporate members of LLPs will be introduced 'at a later date'. Our step-by-step practical guide to identity verification is available to read here.
In September, the judgment of Mazur v Charles Russell Speechlys confirmed that employment by an authorised firm does not permit a “non-authorised” person to conduct litigation, even under supervision. The judgment reaffirmed the principles set out in the Legal Services Act 2007 (LSA) and the SRA's 2022 guidance on effective supervision, clarifying that, even within regulated entities, only an "authorised person" is permitted to "conduct" litigation. This means that a non-authorised person cannot carry out the conduct of litigation under the supervision of an authorised person but can “support” an authorised person in the conduct of litigation.
The Law Society has published a practice note for firms addressing this issue, which includes examples of the types of work that constitute support, as well as practical guidance for firms, which is available to members of the Law Society here. Recommended steps include reviewing policies and procedures to ensure compliance, involving an authorised person in each matter, and implementing appropriate supervision and review processes.
Following the ruling, the Justice Committee has called on the Government to clarify the laws governing the conduct of litigation, highlighting the “significant ramifications” for the profession and questioning whether the provisions of the LSA require amendment.
In February, an Employment Tribunal held that a senior partner in a law firm was unlawfully discriminated against when his firm enforced a mandatory retirement age of 63. The case underscores the importance for LLPs and partnerships to regularly review their retirement policies, ensuring they are supported by evidence, and to consider less discriminatory alternatives to retirement to ensure compliance with the principles established in the Equality Act 2010 and Seldon.
Read our note on the case here.
Cross-border transactions in the sector present unique regulatory challenges. However, these challenges also create opportunities for innovative solutions, such as through the adoption of management service organisations, a model gaining traction in the US legal sector. The model, already popular in the US accounting and healthcare sectors, separates legal practices from business operations, allowing for investment whilst maintaining compliance with regulations. If private equity investment continues at its current rate, the UK and Europe may see similar structures emerge as regulated firms adapt to attract investment and comply with regulations.
The UK government's Professional and Business Services (PBS) Sector Plan, published by the Department for Business and Trade in June, outlines its ambitions to position the UK as the world's most trusted adviser to global industries by 2035. To achieve this, the government has committed £150 million to programmes focussed on innovation in the sector, international expansion of the sector and establishing the UK as a global leader in setting standards and regulations. The plan highlights the significant economic contribution of the PBS sector to the UK, noting its £300 billion contribution to the UK economy in 2024 and its role in providing one in every seven UK jobs. Read the plan here.
Following a consultation launched by HMRC in 2023, it has been decided that the FCA will be appointed as the anti-money laundering and counter-terrorism financing supervisor for all firms in the legal and accountancy sectors, as well as for trust and company service providers. The Treasury has stated that the decision seeks to address vulnerabilities in the UK’s defences against money laundering, and that it will work with the FCA and affected firms to minimise duplication. Whilst it is not yet clear whether this change will cause disruption or increase costs, several industry bodies have expressed concerns about the potential impact on their sectors. The timing of the change is also uncertain, with the Treasury noting that the implementation is subject to the passing of enabling legislation and “heavily dependent on the availability of parliamentary time”. Read the consultation response here.
For advice on legal issues relevant to professional services firms, including business structures, M&A and PE investment, regulatory matters, and disputes and investigations, please contact a member of our specialist team.
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