HMRC proposes new tax rules for LLPs

BDO partners Colin Ives and Anna Jarrold, both specialising in private client services, examine the implications of HMRC's proposals to change tax rules for LLPs.

We had been warned in Budget 2013, so the consultation document Partnerships: A review of two aspects of the tax rules should not have come as a surprise.

However, the implications of the proposals may yet catch out some organisations, particularly as businesses whose current accounting period ends after 6 April 2014 will be affected in this financial year.

HMRC acknowledges that some of the arrangements targeted may not fall within...

Continued...

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Comments

HMRC playing God again

norstar | | Permalink

So if two partners reach a commercial agreement that the split of profits that year will be 75/25 say as one did most of the work, and where that happens to coincide with a tax advantage on paper, HMRC are allowed to decree that in fact, the profits should be split 50/50 to the highest taxed partner.

Seems a bit above their powers don't you think?

your example agreement    1 thanks

Richiejjj | | Permalink

your example agreement implies a non artificial allocation though.

And yet ...

mikewhit | | Permalink

they aren't allowed to make similar decisions regarding transfer pricings to low tax subsidiaries ...

Interesting IR35 angle

mikewhit | | Permalink

So if the new rules would dictate an LLP member was an employee of the LLP for tax purposes, would that override (or swing the balance on) any IR35 status regarding the LLP working for a client ?

Partnerships and all that Jazz    1 thanks

mikefleming3028 | | Permalink

Can anyone remember the 2007 Discussion Document on Income Shifting and the reasons HMRC gave for not proceeding with it, ie the economy was in such a state that they could not justify its implimentation,well is this not Income Shifting by the back door?  

Here is a small extract from that paper:-

INCOME SHIFTING WITHIN MODERN BUSINESSES

1.4

In recent years there has been a growth in the number of small businesses

establishing as companies. There are a number of reasons for this. For example, some

businesses find that their clients prefer to transact with a corporate body; for others, the

limited liability offered by a company is important. Partnerships, too, continue as a

common vehicle for small businesses.

1.5

However, the Government recognises that with the continuing growth of small

businesses using the corporate or partnership form there are greater opportunities to

shift income.

1.6

Where an individual establishes a business using a company structure, they may

decide to introduce another individual as a second shareholder. For small businesses it

is common for this individual to be a spouse, partner or other household member of the

first individual. There are often legitimate commercial reasons for doing this, for

example where the second individual contributes labour or capital to the business. In

these situations the Government believes that it is right for the distributions from the

company to reflect the contribution that both individuals have made.

Sound familiar?

 

 

Joint tax returns    1 thanks

mikewhit | | Permalink

If the Tories followed the logic of their wanting to encourage stable family relationships, then they might consider couple joint income tax returns (USA, IOM ...): then the income shifting aspect would be rendered irrelevant, and all this fretting at HMRC would be over !

(Would also remove those child benefit anomalies)

HMRC target hits all

North East Acco... | | Permalink

The HMRC consultation document keeps referring to schemes. Unfortunately, the tax avoidance boutiques have jumped on the LLP wagon and abused them leading to this new attack on all mixed structures. There are many genuine arrangements which will be caught by these new rules. If HMRC don't want people to take advantage of reduced company rates, increase them or even better reduce high personal tax rates. No chance!!

Profit allocations matching ownership

Martin Dore1 | | Permalink

What if the profit allocation (to a Limited Company lets say) matched the percentage owned by that Company and the Company had paid a commercial sum to aquire that holding.  Would the proposed legisaltion come into play then?