Smith & Williamson said the new rules could significantly add to an LLP’s costs as a result of an additional charge of employers’ national insurance contributions of 13.8 per cent on certain members’ remuneration.

In addition, firms caught by the rules will face the cash flow impact of having to make additional monthly tax payments to HMRC under PAYE, Smith & Williamson said.

Pamela Sayers, tax partner at Smith & Williamson, pointed out that it is important that firms identify the risk areas arising from the potential new rules so they can take appropriate action in good time.

“At the moment, there are no transitional provisions on these rules. As a result, they will effectively apply to the current financial year for dozens of law firms operating as LLPs. Although the legislation is due to take effect from 6 April 2014, because law firms typically have a financial year end of 30 April, the new legislation would apply to financial periods commencing after 6 April 2013,” said Sayers.

The March 2013 Budget saw the start of a consultation process to remove the presumption’of self-employed status which is applied to members of an LLP. That consultation is ongoing but the National Insurance Bill as drafted removes the automatic exemption from employment status for national insurance purposes.

If enacted as drafted, it will mean that from 6 April 2014, LLPs will need to consider the circumstances of each individual member to determine whether they are going to be treated as employed or self-employed for tax and national insurance purposes.