H M Revenue & Customs is undertaking a review of two aspects of the tax rules affecting partnerships and limited liability partnerships (LLPs).
The changes are intended to attack two arrangements which HMRC believe are implemented to reduce tax and are designed to:
- remove the presumption of self-employment for some members of Limited liability partnerships; and
- counter the manipulation of profit or loss allocations by some partnerships LLPs to achieve a tax advantage
and are due to take effect from 6 April 2014.
The proposed changes are complex and, as well as additional tax liabilities, will impose additional uncertainty and administrative burdens on affected individuals, partnerships and LLPs.
With regard to the tax status of some members of LLPs, HMRC is trying to distinguish genuine partners from employees who are registered as members of an LLP. If the basis on which LLPs subsequently file tax returns is not later agreed with HMRC, then additional income tax and National Insurance liabilities will be payable, along with interest and penalties. There is a strong case for HMRC adopting a clearer set of tests to enable those who may be affected by the changes to file tax returns with certainty and confidence.
Many of HMRC’s concerns about the allocation of profits and losses relate to LLP’s whose members include not only individuals but also at least one limited company. We are concerned that HMRC might not recognise the real commercial factors which lead some firms to adopt these structures.
The Revenue’s document is under consultation until 9 August 2013. If you have any concerns about how their review of these tax rules might affect you or your business please contact Sue Stephens, Personal Tax Consultant
