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Partnerships and LLPs

2024 business resolutions

HMRC closed their consultation on the proposed changes to the taxation of partnerships and LLPs on 9th August.

Any subsequent changes will be introduced in the Finance Bill 2014, and be effective from 6 April 2014. Two possible changes are worth highlighting.

1. Disguised employment

HMRC aim to create a new concept for LLPs, a salaried member. They believe that the present presumption, that all members of an LLP are self-employed, has been abused. In effect, salaried employees have been elevated to member status and their previous employed status changed to self-employed status. In certain circumstances this can lead to significant National Insurance savings.

From April next year it is likely that this type of arrangement will be reversed.

2. Allocation of profits

The second area that HMRC want to tackle is the artificial allocation of profit and losses by partnerships with corporate members and schemes involving the transfer of profits between members with different tax status.

Many partnerships allocate profits to corporate partners in order to pay tax at the lower corporation tax rates. In this way the partnership retains more of its working capital.

Partnerships likely to be affected should start to reconsider their planning options, although it would be sensible to delay implementation of changes until the scope of the new legislation is confirmed.

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