Clampdown on tax scams could hit LLPs

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Nick Huber
Freelance journalist
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Accountants in limited liability partnerships could have their self-employment status challenged by the taxman as part of a clampdown on tax scams announced in the Budget.

In his Budget statement earlier on Wednesday, Chancellor George Osborne said that he was presenting one of the “largest ever packages of tax avoidance and evasion measures”, although many had already been announced.

New announcements included agreements to share information with two more tax havens: UK Crown Dependencies, Jersey and Guernsey and new legislation to stop companies avoiding tax when making “close company” loans to directors and shareholders.


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20th Mar 2013 23:01

re LLPs: Isn't this 'only' about salaried partners?

If memory serves there is a clause in the LLP Act which means that all members (partners) in an LLP are to be treated as self employed for tax purposes. Thus those senior people who were salaried 'partners' are deemed to be self employed if members of an LLP even if they don't receive a profit share over and above their 'salary'. In conventional partnerships they might have been treated as employees unless evidently on a par with other partners re access to accounts, attendance at partners' meetings and receiving a share of profits. 

Thus I assume that the issue here concerns only such people and not the full profit sharing partners/members in an LLP.

But it's a good few years since I stopped advising on partnerships and LLPs so am happy to stand corrected.


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By Ruddles
21st Mar 2013 07:57

Loans to partnerships

I'm awaiting clarification on whether the new legislation will apply to loans to Scottish partnerships. I can't see anything in the technical note that excludes them..

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21st Mar 2013 10:40

Partnership profit allocation


I am wondering where these measures to counteract the manipulation of profit/loss allocations  will be targeted.  Hopefully it will be just these aggressive avoidance schemes - which is fair game.  The fear is it will extend to husband/wife partnerships involving a non working spouse.  That would just force more people down the ltd co route.  However it looks like the days of using ltd co partners as a moneybox, for example in dental practices etc may be numbered.

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21st Mar 2013 10:54

Are hydrids dead?

What about a genuine LLP with individual members and a Limited Company member.

Sizable Capital Account in LLP belonging to Ltd Company.

Does this mean that Limited Company Capital Account must be in effect Nil at all times to avoid S455 charge?

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By nigel
21st Mar 2013 11:04

Is the UK becoming a tax haven?

I hear we now have the lowest rate of CT in Europe. It's all very well banging on about offshore tax avoidance, but presumably our European neighbours might soon be introducing their own anti-avoidance rules to prevent their nationals coming over to the UK to take advantage of our low tax rates! In a global economy this needs some joined up thinking - but then that's politics for you!!

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21st Mar 2013 11:10

close co loans

Will an overdrawn directors current account in a close co be deemed a loan and attract corp Tax if not repaid in full within 9 months of the co financial year end?

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21st Mar 2013 11:20


Yes, provided the director is a participator. As has always been the case.

Regarding the company's capital account in the LLP (or other partnership) there was discussion on this point recently - my view is that such a capital account is not a debt, and is therefore outside the scope of s455. That view was shared by some, but not all. In any event, I don't see the proposed legislation changing that view.

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25th Mar 2013 12:13

It'll be interesting.....

It'll be interesting to see how they approach this.

"If memory serves there is a clause in the LLP Act which means that all members (partners) in an LLP are to be treated as self employed for tax purposes."

I believe Mark's correct here and it's always previously been accepted by HMRC that a member of an LLP can't be an employee.

For other purposes, the  distinction seems to revolve around 'salaried' or 'fixed profit'  ( e.g the Employment Appeals Tribunal decision in Tiffin v Lester Aldridge LLP where it was held that held that a fixed share partner was not an employee.) 

I'd suggest a review of that and similar cases should be undertaken when reviewing LLP members.  My guess is that HMRC will be looking at salaried members but will struggle with fixed-profit members.



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By rosstax
02nd Apr 2013 21:34

close companies

presumably the point here is that whereas an LLP is treated, inter alia, as a regular partnership for corporation tax, sec 455 tax is not "corporation tax".


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13th Jun 2013 14:55

Full Judgement

For those of a legal mind the full judgement for this ruling is here

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