AS2013: Advisers concerned over lack of partnership avoidance detail

TACKLING tax avoidance through partnerships will be introduced in the 2014 Finance Bill, looking to make a £3bn haul for the Treasury, but advisers have expressed surprise about the lack of detail in the plans.

The government had targeted partnerships over tax avoidance, where profit allocation provides opportunities for tax avoidance. Changes to the tax rules will likely affect most professional practices, including accountancy firms.

Details revealed in the Autumn Statement lay out the plan for introducing legislation to counter the avoidance. Legislation is set to be introduced from today to tackle avoidance around mixed membership partnerships, where individual members control the ‘corporate’ members within the partnership. This control can be used for tax avoidance purposes, where profits are shifted to the corporate member and taxed at half the rate of income tax.

The Treasury has upped their estimate for tax take from stamping out partnership and LLP avoidance by £1.9bn since its Budget estimate – to £3.3bn. The government received “new information” showing that the impact would be greater on alternative investment fund managers (i.e. hedge funds and private equity funds) operating in partnerships.

Details of how this will work in practice is sketchy, advisers warned.

“HMRC need to provide clarity on this matter as soon as possible, so partnerships can ensure they stay within the law,” said Reeves tax partner Geraint Jones.

Further legislation comes into force on 5 April 2014, which will outline the status of salaried members of LLPs for tax purposes. While there is existing case law and guidance on this issue, there appears to be no detail concerning the status of salaried members of an LLP. This is important because there is a suggestion that salaried partners could be considered as employed – rather than self-employed – and the subsequent impact on the tax they would pay.

Tom Byng, tax partner at MHA MacIntyre Hudson, said: “It’s disappointing that there’s no further guidance, given the ongoing consultation since the Spring. People will need time to plan and assess their status, and to make adjustments if necessary.”

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