The Budget 2013 included a stated intention that HMRC would be enabled to take a fresh look at the possible manipulation of profit and loss allocations from partnerships to secure a tax advantage. HMRC has since published a formal consultation on anti-avoidance legislation for LLPs. The effective date for proposed legislative changes is April 2014.
HMRC are particularly concerned that partners in LLPs may be receiving fixed profit share arrangements that are, in all other respects, salaries. This so-called “disguised remuneration” allows the recipients and the partnership to avoid certain Class 1 National Insurance contributions as well as producing some income tax advantages.
HMRC will also be taking a closer look at partnerships that have corporate members which will be paying Corporation Tax at the lower company rates.
The proposals in the consultation document are widely drawn and we will not know the final rules for some while yet. However, there are some core principles which are likely to make it to the final legislation. We would encourage all our readers who may be affected to make an appointment to discuss any potential implications for their tax position.