The new personal income tax rate of 50% for earnings above £150,000 is set to come in from 6 April 2010. The effect for partners in many professional service firms will be that a significant amount of their income will be taxed at a higher rate.

Partnerships and LLPs may well wish to consider restructuring options in order to enable monies to be distributed out in an overall tax efficient manner among the partners. For example, partnerships and LLPs may want to consider whether partners can be remunerated in other ways, such that part of their "income" is structured as a capital payment to attract the lower rate of capital gains tax (currently at 18%) rather than all of their remuneration being treated as income.

Another idea is for partnerships and LLPs to consider incorporating the business as a company to take advantage of the current rate of corporation tax (28%) which is not expected to rise in the short term. For further details, please see Tax and employee incentives e-bulletin on 25 November 2009.

A further consideration for partnerships and LLPs has been whether to change their accounting period to end the current period prior to 6 April 2010. This may impact on the overall tax payable by the partners depending on the future profit profile of the firm.

Clearly professional service firms are concerned about attracting and incentivising the best people and those individuals will be looking to maximise their ultimate take home pay. All partnerships and LLPs therefore need to be alive to the impact that the change in income tax will have on their partners' earnings - considering options to minimise the impact of this tax change may improve a firm's ability to attract and retain key personnel in circumstances where competitors with tax efficient structures may be able to offer more attractive remuneration packages.