Partners will need to foot PwC’s £36m national insurance hike

Big Four partners think of themselves as more than just employees. The top ranks of the world’s biggest accountancy firms jointly own and manage their firms — and share in its profits at the end of the year. These payouts can run into the millions of pounds each year.
But those rewards will now be hit by the sizeable increase in employers’ national insurance contribution (NIC) announced by Rachel Reeves in last month’s budget.
PwC, the UK’s biggest auditor, is paying an extra £35,000 in employer’s NIC for each of its 1,030 partners. That means that Britain’s biggest auditor will see its tax bill increase by nearly £36 million because of the changes. And, as its partners share in the firm’s profits at the end of the year, they will end up paying for the increased cost eventually.
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While PwC has the biggest partnership among the Big Four, its competitors at KPMG, EY and Deloitte will likely be saddled with similar increases to their tax bills.
And it could not have come at a worse time for the firms, which have been battling a downturn in demand for their professional services. These include auditing, consulting, tax advice and restructuring.
In September, PwC announced that its partners were paid an average £862,000, a 5 per cent pay cut compared with last year. To protect the profits for its remaining partners it has been trying to shrink its partnership size. Last week, more than 50 of its partners, around five per cent of its partnership, were asked to retire early. The move is the latest attempt by PwC UK’s new UK head, Marco Amitrano, to shrink the size of its top ranks to protect partner pay.
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Like all of the Big Four, PwC has been cutting jobs over the past year amid a downturn in professional services. Consulting, which raked in about £2 billion for the firm last year, has seen a wane in demand, as cash-strapped companies cut back on expensive corporate advice.
It was not always thus. For years, limited partnerships did not have to pay national insurance contributions for their partners because they were not considered employees. However, the 2014 Finance Act changed the rules so that senior staff in big professional services firms would be taxed as employees in some contexts, as some companies were incorporating as partnerships simply to avoid paying the tax.
But for this crop of Big Four partners — they will have to stomach the bill.