TAX PRACTICES across the Accountancy Age Top 50+50 managed to maintain some growth despite many having to manage the distraction of themsleves complying with new rules on the way LLPs are taxed.
It’s safe to say that much of the last six months has seen a substantial swathe of firms seek to address the hastily-drafted and equally rushed-in LLP tax rules and apply them.
The rules around LLPs were tightened, making it more onerous for partners to retain their status. A three-point check was introduced, taking effect from April, which, if partners fail to meet, sees them taxed as an employee.
Of the 49 LLPs within the Top 50+50, 34 said they were in some way affected by the tightened rules, with 21 admitting they were forced to make cash calls to the partners caught by the new legislation.
In all, firms confirmed to Accountancy Age at least £3.8m was paid in cash injections, although the true number is likely to be far higher given that some elected not to disclose that information.
The government harboured concerns that limited liability partnership structures allowed “disguised employment” to take place, whereby people that are ostensibly partners in fact have a guaranteed income and little decision-making power.
Away from putting out that particular fire, it’s largely been a case of a return to better times, with the sector’s tax function creeping up to £2.65bn from last year’s £2.5bn, an increase of nearly 6%.
Stability was very much the theme for tax functions, with 16 of the 100 firms posting growth between 5% and 10%. A further 13 grew up to 5%. But a signidifcant number, 21, posted double digit growth. These figures were spread throughout the table.
Some saw their numbers fall, with Critchleys’ tax function shrinking 19.3%, while Duncan & Toplis’ saw its contract by 4.2%. Perhaps most surprisingly, KPMG also posted negative growth of 1.3%.
There were big winners coming from the smaller end of the market. Berg Kaprow Lewis was one such firm, growing its tax practice 46%, something borne out in their partner hires earlier in the year.
The Old Mill made similar strides, driving its tax function’s income up 39.7% to around £1.8m following a second strong year to consolidate its spot in the Top 50. The firm recently revealed strong results as a whole, citing a mix of new client wins and prviding valued-added services to existing clients.
New entry the MPA Group also made significant gains, hitting £4m in tax-related fee income following 130% growth.
Further up the table, Baker Tilly posted gains of 33%, but this is in part due to its absorption of RSM Tenon and the fact it did not supply new figures in the Top 50+50 2013. Nevertheless, its tax arm drew in £64m last year, nearly double nearest competitor Smith & Williamson’s £38.2m following growth of 2%.
Baker Tilly still lags some way behind Grant Thornton and BDO, however, which posted £93m and £97m for their tax functions respectively. Notably, however, BDO’s 15.5% growth dwarfs Grant Thornton’s 1.81% increase.
Predictably, the Big Four continued its domination, breaking the £2bn mark for the first time, totalling £2.07bn following last year’s near-miss with £1.99bn.
But it has not all been uniform growth for major players. KPMG followed last year’s 3% fall with another 1.3% contraction, while its rivals posted relatively modest increases: Deloitte with 6.4%, EY with 6% and PwC with 3%.
It seems safe to say that recent years have seen the sector’s growth shackled somewhat by major legislative changes – this latest LLP tax move being a case in point, while the GAAR is another. With the general election due in 2015, it’s likely such disruption won’t occur over the coming year, freeing firms to press ahead with their plans, unfettered by external concerns.
It couldn’t be better timed for firms, either, following the emergence from the recession and as the increasingly confident economy gathers strength.
Andrew Howson joins the firm from EY, bringing experience in advising private equity and corporate clients across multiple sectors in the UK and Europe
Dennis Layton takes up the position on April 1 and will contribute to the firm’s goal of becoming the leading global professional services organisation by 2020
Richard Cartwright becomes the new head, taking over from incumbent head of office David Lemon
Brian Burke, business development director, has moved within the firm to 'develop Quantuma’s networks with Sussex professional firms'