LLP ‘disguised employment’ rules go ahead

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In spite of a call from the House of Lords last week to delay the measure, the government is pressing ahead with legislation affecting the taxation of limited liability partnerships (LLPs).

The new measures address HMRC’s concerns, first expressed in the 2012 Budget, about “disguised employment”, where tax was being avoided by LLP members who were not in true partners, and should therefore should be taxed as employees.

HMRC documentation (paragraph 1.57 of the overview of legislation) confirmed that Finance Bill 2014 will set out tests to determine whether members of LLPs are partners for tax purposes, or whether they should be taxed through the payroll. Failing the test will bring an individual LLP employee within PAYE, and Class 1 NIC for earnings that would previously have been taxed as a profit share.

After consultation with the profession, HMRC clarified when the rules will apply and gave partners three additional months to prepare their finances - but the legislation is likely to post significan financial and administrative challenges for accountancy firms that converted to LLPs, and junior partners who currently have 80% or more of their remuneration guaranteed.

Rebecca Benneyworth, author of our Budget 2014 impact report for TaxCalc, said that despite the Lords’ late intervention...

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About John Stokdyk

John Stokdyk is the global editor of AccountingWEB UK and


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25th Mar 2014 09:43

It is about

time that HMRC realised that it is not up to them who decides who is self-employed or employed. This whole farce - employment status - (and it will get worse) is based on HMRC and government greed for raising money however they can. Leave the workforce of this country alone and the HMRC will reap the benefits. Carry on down this road and you won't have a decent workforce left.

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