Profit share in, tax reserve and sustainable monthly drawings out — on 2026/27 rates, including the payments on account that turn a new partner's second January into a very expensive day.
Your allocated share of the firm's taxable profit, before any drawings.
Rental income, dividends from elsewhere, salary from another role. Leave at zero if the firm is your only income.
What actually leaves the firm and reaches your account each month.
First year changes the January bill: the balancing payment and the first payment on account land together.
Illustrative figures on 2026/27 rates and simplified assumptions. This is information, not advice, and it is no substitute for a proper calculation on your firm's real numbers. Ask us for the accurate version — it's free.
We will send the figures exactly as they appear on the right, so you have them when you sit down with your partners or your COFA. We use your address for that and for the monthly law firm finance email, nothing else, and you can unsubscribe from the first one you get.
The first thing to be clear about is that drawings are not a taxable event. As a partner or an LLP member you are taxed on the profit share allocated to you, whether you take it out of the firm or leave it in. That is why the reserve is calculated on the profit share and not on what you draw, and why a partner who leaves money in the business still has to fund the tax on it from somewhere.
Income tax runs at 20% on the first £37,700 of taxable income, 40% to £125,140 and 45% above, with a personal allowance of £12,570 that tapers away by £1 for every £2 of income over £100,000. On top of that a partner pays Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. Stack the two and the marginal cost of the next pound of profit share is 42% for most equity partners and 47% once income passes £125,140 — which is the figure to hold in your head when the firm is deciding what to allocate.
The sustainable drawings line is the profit share less the reserve, spread over twelve months. If you are drawing more than that, the difference is coming out of the firm's working capital — the same capital that is funding lockup. That is the mechanism by which a profitable firm runs out of money.
Payments on account are due on 31 January and 31 July, each half of the previous year's liability, and they start once that liability exceeds £1,000. In your first year of self assessment there is nothing to pay on account, so the tax feels manageable. The following 31 January you pay the balancing amount for the year just gone and the first payment on account for the year you are in — the whole liability plus half of it again, on one day.
Tick the first-year box above and the calculator shows that combined figure explicitly, because it is the bill that catches new partners. The answer is simple and unpopular: reserve the monthly figure from the first month of your first year, into a separate account, and treat it as money that has already gone. Partners who do this find the second January uneventful. Partners who do not spend their second year paying for their first.
It assumes your profit share is trading profit taxed at the rates above, that any other income you enter is taxable and not already taxed at source, and that payments on account are set by this year's liability as a proxy for next year's. It does not model student loan repayments, capital gains, the High Income Child Benefit Charge, pension contributions or gift aid, all of which move the answer. It also does not model transition profits from basis period reform — if your firm still has a year end other than 31 March or 5 April, an extra slice of transition profit is spread across tax years up to 2027/28, and it is real cash you need to reserve for on top of this.
One thing partners often assume incorrectly: a share of partnership profits is not qualifying income for Making Tax Digital for Income Tax, and partnerships and LLPs are not in scope. HMRC has said the timeline for partnerships will be set later. If you have separate self-employment or property income in your own name above the threshold, you are in scope for that — not for your profit share.
A drawings policy that survives a bad quarter has three parts: a monthly drawing set below the sustainable figure, a tax reserve held separately and never borrowed from, and a profit distribution after the year end once the numbers are known. Firms that run this way stop having the awkward conversation in January, because there is nothing to have it about.
The mechanics differ by structure, and the LLP and partnership page covers members' capital and current accounts and how profit allocation interacts with the salaried members rules for fixed-share members. If you are weighing up incorporating instead, the LLP versus limited company calculator does that arithmetic on the same 2026/27 rates. And every date that matters is collected on the law firm tax calendar. For the version built on your firm's actual allocation, ask us — it is free and it takes one conversation.
These tools use sensible simplifications. A free conversation gets you the accurate version — and usually two or three things worth fixing before your next reporting period ends.
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