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HMRC consultation on LLP and partnership tax rules

View profile for Matthew Fretten
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In May this year HMRC launched a consultation paper on two aspects of LLP and partnership structures in an attempt to counter perceived abuse of these structures for tax avoidance purposes. The paper sets out HMRC’s proposals to change the tax treatment of those they describe as ‘salaried members’ of LLP’s and on taxing profits in mixed partnerships.

HMRC believes that there is currently an inconsistency in the way that LLP’s are treated, which means that some LLP’s are able to avoid their employment tax obligations. Current tax rules mean that individual members of an LLP are taxed as if they are partners in a traditional partnership – thereby self-employed for tax purposes – and obtain a more favourable treatment of income tax and NI contributions.

Corporate members are liable for corporation tax. One of the key areas of focus is ‘mixed partnerships’ and how they are taxed. Mixed partnerships, including LLP’s are those which comprise of a mix of companies and individuals as partners. CommercialPartner Matthew Fretten says, “HMRC believe that there has been an increase in ‘corporate partner planning’ for tax purposes. The consultation document seeks to reverse the advantages where profit allocations in mixed partnerships are made in order to secure a tax advantage.”

Salaried member arrangements are those perceived by HMRC to have been set up to take advantage of current tax legislation that treats all members of an LLP as a self-employed partner for tax purposes, even if in reality they are employees.

It is proposed that the new legislation will be effective from 6th April 2014. If you would like more information on the consultation, or for a free initial chat, please call 01202 499255 and Matthew or a member of his team will be happy to discuss any questions that you may have.