EARLIER this year HMRC launched a consultation document in an attempt to counter the perceived abuse of partnership structures for tax avoidance purposes.
HMRC is of the opinion that there has been an increase in corporate partner planning where businesses are attempting to get the best of both worlds by combining the flexibility of partnerships with the benefit of lower corporate tax rates.
The consultation document outlined HMRC’s plans to combat this and covered the taxation of mixed partnerships containing both individual and corporate partners. The proposed rules will apply where it is reasonable to assume that a tax advantage is the main purpose of profit sharing arrangements.
There must be an economic connection between the partner who is within the scope of income tax and the corporate partner. This is most likely to be where the partner is a shareholder in the company. Where the proposals apply, profits allocated to the company may become taxable on the individual partners.
In addition to the above, the consultation paper also set out proposals to change the tax treatment of those described as salaried members of Limited Liability Partnerships.
Whilst the proposals are currently fairly vague and as with any consultation there may be significant alterations before any changes are enacted, businesses likely to be affected by the changes may wish to review their situation.
It is proposed that the new legislation will be effective from April 6, 2014, and will affect all structures and arrangements concerned from that date, not just new ones created after that date.
If you would like more information on the consultation, which has now closed, or believe your business may be affected, contact me on firstname.lastname@example.org or 01573 224391.