Appropriation of pship profits Q2

Appropriation of pship profits Q2

Didn't find your answer?

Individual "I" is a director and majority shareholder of UK close trading company "C".
Individual "I" is also a member of partnership "P"

There are no overseas considerations, and assume that IR35 is not in point.

"P" is not a member of "C", nor is "C" a member of "P", nor are there any other relationships save any discussed below.

"C" contracts with "P" for "C" to provide services to "P" in exchange for consideration passing from "P" to "C".  The terms and rates are fully commercial.  The services are performed by "I" on behalf of "C".

The consideration is claimed as a schedule D deduction from the partnership profits prior to appropriation of the balance by the partners.

Although the terms are commercial, there is a tax motive for the arrangement:  By sheltering the income in "C", "I" can defer the personalisation of income until such time as he requires it.  As well as deferring any personal tax liabilities he would also expect ultimately to receive the income free of any NIC.  If taken as income he can also control the applicable tax rates by taking the income in an appropriate year, or divert some to his spouse at a lower rate who is also an ordinary shareholder of C (not a partner of P), or he may even get a 10% tax rate on liquidation of C.

I am aware that antiavoidance legislation to combat arrangements between partnerships and related companies is currently flavour of the month, but as in this case neither is a member of the other, is there anything either current or proposed that would combat this particular arrangement?

With kind regards

Clint Westwood

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.