Baker Tilly responds to Government’s review of tax rules for partnerships

22 May, 2013

HMRC has published an important review of two aspects of the tax rules affecting partnerships and limited liability partnerships (LLPs). Once implemented, the new rules will generate further taxes of up to £365m per year.

 

The two changes, which are intended to impose additional tax and National Insurance Contribution liabilities on arrangements which HMRC believe are implemented to reduce tax, will:

  1. remove the presumption of self-employment for some members of limited liability partnerships; and
  2. counter the manipulation of profit or loss allocations by some partnerships and LLPs to achieve a tax advantage.

 

George Bull, Chair of the Professional Practices Group at accountants Baker Tilly said: ‘At a time when fairness and justice in the tax system are of great importance, HMRC’s concerns are easy to understand, but these proposals are far too complex and will impose additional uncertainty and administrative burdens on affected individuals, partnerships and LLPs.

 

‘HMRC is trying to distinguish genuine partners from employees who are registered as members of an LLP, and we are concerned that the proposed tests will create substantial uncertainty.

 

‘Larger LLPs will have their own client relationship manager (CRM) within HMRC who will be able to provide reassurance regarding the filing positions to be adopted. However, most LLPs will not have the luxury of a CRM, and could face additional income tax and National Insurance liabilities as well as interest and penalties if they get it wrong. Many of HMRC’s concerns about the allocation of profits and losses relate to LLPs whose members include not only individuals but also at least one limited company. We are concerned that HMRC may not fully recognise the commercial factors which lead some firms to adopt these structures such as law firms seeking to raise external capital. Other firms may adopt these structures to hold the intellectual property in growing UK or international networks. We will be raising our concerns with HMRC as part of their ongoing consultation.’

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