Treasury to push on with partnership crackdown

THE TREASURY SECTRETARY is to push ahead with plans to clamp down on the tax arrangements used by partnerships, in a move advisers say is targeted at accountancy firms.

The government is determined to put a stop to the current rules, which allow junior employees to be classified as a partner for tax purposes, when in reality their job is unchanged and they hold no decision-making power, equity or capital risk. Under the proposals, this will no longer be possible.

The review also aims to tackle the manipulation of profit and loss to create a tax advantage, which is typically achieved by allocating profits to some partners and losses to others with a view to that partner obtaining a reduction in tax liability by way of income tax reliefs or capital gains relief.

“Following a brief consultation we will be closing the loophole that allows private equity shareholders to siphon money out of their firms while dodging the intended income tax. I can also announce that we will also be closing the loophole that allows partners in partnerships to structure their staff arrangements so that they avoid the correct amount of income tax,” City AM reports Danny Alexander (pictured) as saying.

For its part, the government claims around £300m will be raised as a result of the changes, something which many feel does not justify the move.

But despite the government’s conviction, advisers are unconvinced by the idea, with some suggesting the measures could “do more harm than good”.

In particular, many are concerned the consultation provided insufficient detail on how the proposals would operate in practice, and query whether the commercial purpose of such structures is adequately understood.

MHA MacIntyre Hudson tax partner Nigel May recently noted the move “would truly call into question whether there is any reality whatsoever to pre-legislation consultation”.